UNIVERSITY OF CALIFORNIA LOS ANGELES SCHOOL OF LAW LIBRARY v-y^! m¥i MODERN BUSINESS CORPORATIONS INCLUDING THE ORGANIZATION and MANAGEMENT OF PRIVATE CORPORATIONS WITH FINANCIAL PRINCIPLES and PRACTICES AND SUMMARIES OF DECISIONS OF THE COURTS ELUCIDATING THE LAW OF PRIVATE BUSINESS CORPORATIONS, AND EXPLANATIONS OF THE ACTS OF PROMOTERS, DIRECTORS, OFFICERS AND STOCKHOLDERS OF CORPORATIONS By WILLIAM ALLEN WOOD, M. S., LL. B. Of the Indianapolis Bar FORMS OF PROCEDURE ILLUSTRATIVE OF THE FORMATION, ORGANIZATION, OPERATION AND CONSOLIDATION OF CORPORATIONS Written or selected By LOUIS B. EWBANK, LL. B. Of the Indianapolis Bar INDIANAPOLIS THE BOBBS-MERRILL COMPANY PUBLISHERS Copyright 1906 By the BOBBS-MERRILL COMPANY THE HOLLENBECK PRESS INDIANAPOLIS PKEFACE. The object in preparing this book has been to combine the essentials of the substantive law of corporations with the proce- dure in the organization and management of corporations so that the officer, director, and stockholder of corporations, and also the lawyer for corporations, may have a ready reference manual by which to gauge their actions. Much of the litigation in corporation lines arises out of ignorance or ignoring on the part of these persons of the essentials herein contained ; also many of the failures of corporations arise from deflections from the principles of management and finance which are here intro- duced. The yearly economic waste from these sources is enor- mous. The principles of capitalization and finance have been given lengthy treatment because lawyers are rarely ever familiar with them and because these principles are not contained in any other book on this subject. The corporation lawyer of to-day should understand particularly well the principles of capitaliza- tion since, in most of the instances where he is called upon to incorporate companies, his advice is asked on this matter. It should be remembered that honesty and conformity to law in the organization and administration of corporations is the best policy even from the most selfish standpoint. The spirit of the following extract from the last report of the National Biscuit Company is commended to the officers and directors of corpora- tions. After explaining that corporations are inevitable and de- sirable, and that our whole commercial character depends on the management of them, the writer of the report says : "Every officer of a corporation should endeavor so to manage its affairs that it shall commend itself to the people of the country so that the attitude of the people towards corporations shall be not hos- tile, but friendly. To accomplish this, the vital point, it seems iii IV PKEFACE, to US, is that the corporation must not be separated from the individuals wlio manage its affairs, and that these individuals must carry into the management of the corporations the same rules of conduct that they apply to their private lives. They must not have one standard of morality as officers and another as private individuals. They must not only obey the law, but they must actively support the law." Neither lawyers nor laymen having to do with corporations can have too extensive a knowledge of the well-established prin- ciples of corporation law. It would be impossible in a book this size to include the exceptions declared by positive rules of law in matters of detail ; but a book of this kind furnishes a basis for all later and more extensive knowledge, and suggestions of caution are liberally sprinkled in places where they are most needed. The authorities used in the preparation of this book are many, but principally the following works have been con- sulted : Seymour D. Thompson on Corporations, Elliott on Pri- vate Corporations, Dill on New Jersey Corporations, Conyngton on Corporate Management and Meade on Trust Finance. It has been the plan, as far as possible, to arrange the divisions of the subject as to their time sequence in the formation, organ- ization and management of corporations, and to keep from chop- ping the subject into such small bits by sectional arrangement that its organic conception is destroyed. A book of this kind is necessarily an interweaving of law and business economics, as corporate business purposes are forwarded only through the union of corporate powers and corporate funds or assets. William Allen Wood. INTRODUCTOKY. Sohm, in The Institutes of Roman Law, says: "The concep- tion of a collective juristic person as a possible subject of private rights was not developed till towards the close of the republic with the rise of the system of municipal government. The prop- erty of the municipium or town-community was brought under the private law, and the municipium thus acknowledged as a person capable of private rights and duties. * * * [The juristic person of Roman law] represents a kind of ideal private person, an independent subject capable of holding property, totally distinct from all previously existing persons, including its own members. It possesses, as such, rights and liabilities of its own. * * * ii;i point of law, the collective person is a new individual like other individuals. * * * JJoman law contrived to accomplish a veritable masterpiece of juristic in- genuity in discovering the notion of a collective person; in clearly grasping and distinguishing from its members the col- lective whole as the ideal unity of the members bound together by the corporate constitution ; in raising the whole to the rank of a person (a juristic person, namely), and in securing it a place in private law as an independent subject of proprietary capacity standing on the same footing as other private persons. * * * A natural person, then, is a visible individual person, a human being; a juristic person, within the meaning of private law, is an ideal individual person with proprietary capacity, cre- ated by means of organization." So much for the origin of the corporations.* In the time of the republic of Rome voluntary corporations were formed so extensively and so without restriction that they were all dissolved by a law passed 64 B. C. Later they were re- vived, and under Julius Csesar it was required that the objects of incorporation should be clearly defined in tho charter (ar- * Gaius traces corporate bodies to the time of Solon of Athens. V VI INTRODUCTORY. tides), and that every charter sliould be submitted to Caesar for approval. After the fall of Home, and during the Middle Ages, the business corporations did not cut much figure. Church and workmen's guild corporations flourished. Later great trad- ing corporations, such as the East Indian Company, the Hud- son Bay Company, and many similar corporations were organ- ized in England and other European countries. The English companies got to be monopolistic, and, in the end of Elizabeth's reign, two hundred shareholders controlled five-sixths of the foreign trade of England. These companies were created by special charter. England now has general incorporation laws. In colonial times in America corporations were formed through grant of charter by the crown or by the governors as representa- tives of the crown. From time to time the separate colonies be- came independent states. Up to 1837 charters were granted only through special acts of the legislatures. In 1837 a business cor- poration act, drawn by Theodore Hinsdale, a graduate of Yale, was passed by the Connecticut legislature. This was the first act of the kind in America, and it was the model for the general enabling acts for business corporations passed by the other states for several years after. The working of this kind of legislation was so satisfactory that the creation of corporations by special acts has been forbidden by the constitutions in many of the states of the Union. Later years and wider experience have de- veloped a more liberal kind of code, which follows the modern theory that, in the absence of fraud in organization and manage- ment, a business corporation should be allowed to do anything that an individual may do. A model code, called The Business Companies' Act, was formed on this idea, and was drawn up un- der the direction of the eminent corporation counsel, Mr. James B. Dill, of New York, and the eminent economist. Professor Jeremiah W. Jenks, of Cornell University, and was recom- mended in 1900 to the New York legislature by Governor Roosevelt. It is worthy the study of all who are interested in the reform of this important branch of the law. The Industrial Commission, also, has made some important recommendations as to reforms in corporation law. TABLE OF CONTENTS. PART I. Private Corporations: Definition, Advantages, Legal Status. SECTION. PAGE. 1. Corporation: Definition 1 2. Kinds of Private Corporations 2 3. By What Laws a Private Corporation is Governed 2 4. Incorporation in More Than One State 3 5. Special Acts of Incorporation 4 6. Difference Between a Private Corporation and a Joint Stocli Company 4 7. Advantages of Incorporation 5 8. Two Theories of the Duty of a State in Creating a Corpora- tion 7 PART II. The Formation and Organization of a Private Corpora- tion. SECTION. PAGE. 9. Who May Form a Private Corporation 14 10. Fortuitous Association of Individuals 14 11. Definition of Promoter, and the Promoter's Functions 15 12. Promoters' Profits 16 vii Vlll CONTENTS. SECTION. PAGE. 13. Fiduciary Kelation of Promoter to Prospective Corporation 17 14. Responsibility of Fiduciary Relation and Recovery for Breach 17 15. Promoter's Fraudulent Representations or Concealment, and Liability Therefor 18 16. Failure of Organization of the Corporation and Promoter's Liability 19 17. Corporation's Liability for Services Rendered by Promoter 19 18. Promoter's Lack of Agency 20 19. Contracts Made with Promoter 21 20. Inter-relation of Promoters 21 21. Aiders and Abettors of a Fraudulent Promoter 22 22. Where to Incorporate 22 23. Special Advantages and Disadvantages in the Corporation Laws of the Liberal Commonwealths 23 24. Relation to the Creating State of a Corporation Whose Prin- cipal Office and Business are Located in a Foreign State. 27 25. A Corporation's Relation to Foreign States 28 26. Capitalization : Definition 31 27. Determining the Amount of Capitalization 32 28. More Things in Regard to Stocks and Bonds to be Consid- ered Before Capitalizing 39 29. Capitalizing at Less Than Real Value 44 30. Placing Stocks and Bonds 45 30a. Financial Banking and Trust Organization 50 31. The Stock Exchange 59 32. The Sale Price of Stocks and Bonds With Reference to Time of Issue 62 33. Changing a Ohe-Man Business or Partnership Into a Cor- poration 65 3.4. Proper Valuation of Private Business or Partnership As- sets, Patents, and Other Property to Safely Constitute Stock Exchanged for Them Full-Paid 68 35. Stock Subscriptions 69 PART III. Chaeter, Articles, By-Laws and Rules of Order. SECTION. PAGE. 36. The Charter and Articles of Association 75 37. The Purposes for Which a Corporation is Formed 76 38. Powers Common to All Corporations 77 CONTENTS. IX SECTION. PAGE. 39. Ultra Vires Acts 77 40. Amendment of Charter and Articles. . , 79 41. Irregular Incorporation 82 42. Forfeiture of Charter by Non-User 82 43. The Beginning of the Existence of a Corporation 82 44. By-Laws 82 45. Rules of Order 87 PART IV. DiEECTORS AND OFFICERS. SECTION. PAGE. 46. Number, Qualifications, Powers, and Right to Choose and Remove ^ 1 47. Directors' Meetings 98 48. The President 1 00 49. The Vice-President 101 50. The Secretary 102 51. The Treasurer 103 52. The Managing Director and General Manager 104 53. The Counsel 104 54. The Auditor 105 55. The Committees lOP PART V. Capital Stock and Bonds. SECTION. PAGE. 56. The Nature of Capital Stock 109 57. Fully Paid and Partly Paid Stock Ill 58. Bonus and Watered Stock Ill 59. Usual Kinds of Stock 113 60. Registrars and Transfer Agents 120 61. Incidents of Issue and Transfer of Stock 1 23 62. Bonds 125 CONTENTS. PART VI. Stockholders. SECTION. PAGE. 63. Stockholders' Powers, Rights and Liabilities 133 64. Stockholders' Meetings 134 PAET VII. Corporation Bookkeeping, Auditing and Accounting. SECTION. PAGE. 65. Corporation Bookkeeping, Auditing and Accounting 143 66. A Corporation's Books 167 67. The Minute Book 168 68. The Stockholders' Ledger 171 69. The Book of Stock Certificates 172 70. The Transfer Book 174 71. The Dividend Book 176 72. The Subscription Book 176 73. The Instalment and Instalment Scrip Books 178 74. The Corporation Calendar 179 75. Books Required by Law 181 PART VIII. Dissolution, Consolidation, and Reorganization and Eenewal of Charter. SECTION. PAGE. 76. Dissolution of a Private Corporation 185 77. Consolidation of Private Corporations 187 78. Reorganization of a Private Corporation 188 79. Renewal of Charter 190 CONTENTS. Xi PART IX. Forms. PAGE. Promoter's Contract * 193 Subscription by Owners on Executing Agreement with Promoters 194 Stock Subscription Given to Promoter 195 Subscription Blank, After Organization 196 Underwriting Agreement 196 Purposes of Incorporation 199 Articles Under the New York Business Corporations Law 203 Articles Under New Jersey "Act to Incorporate Associations Not for Pecuniary Profit" 204 Articles of Voluntary Association — Merchant, Etc., Indiana.... 205 Charter of the United States Steel Corporation 207 By-Laws — Simple Form 213 By-Laws of United States Steel Corporation 217 Common Form of Common Stock Certificate and Stub 229 Common Stock Certificate Containing Notice and Terms of Pre- ferred Stock Issue t 230 Sentence Granting Additional Pro Rata Dividend to Preferred Stock 232 Founders' Shares — Stock Certificate 232 Certificate Form Used by Standard Oil Company 232 Form of Assignment and Transfer on Back of Stock Certificate. . 233 First Mortgage Gold Bond 233 Sinking Fund Bond 235 Income Gold Bond 237 Receivers' Certificate of Indebtedness 241 Voting Trust Agreement 243 Notice of Stockholders' Annual Meeting 245 Notice of Stockholders' Special Meeting 245 Stockholders' Meeting — Waiver of Notice 246 Simple Proxy 247 Proxy for a Particular Meeting 247 Proxy for Specific Action 247 Oath of Inspectors of Election 248 Inspectors' Certificate of Election 248 Notice of Election as Director 249 Notice of Regular Meeting of Directors 249 Notice of Special Meeting of Directors 249 Xll CONTENTS. Directors' Meeting — Waiver of Notice 250 Notice of Dividend 250 Procedure for Issuing Bonds 250 Indemnity Bond for Reissue of Lost Stock Certificate 252 Resolution of Consolidation 253 PART X. Miscellaneous. PAGE. Trusts and Voting Trusts 257 Corporation Receiverships 260 Corporate Credit 262 Marketing Notes in the Open Market 267 The Corporate Seal and Corporate Signatures 270 The Corporation Lawyer 272 Corporation Bond and Stock Investments 275 The Magnitude of Corporations 278 Distribution of Corporate Wealth 281 Origin of Commercial Manifestations of Corporate Existence: Stock Exchanges, Stock Brokers, and Evidences of Title to Corporate Shares and Debt Secured by Mortgage 283 "Unintelligent Competition 289 Advantage of Foreign Corporations in Courts 299 APPENDIX. PAGE. Rules of the New York Stock Exchange on the Admission of Listed and Unlisted Securities 303 Bibliography of Useful Books on Corporations 311 Charts Showing Possible Distribution of Officers, etc., and Their Responsibility 314 Chart Showing How a Great Engineering Company Distributes +he Management of Its Business 315 Taoles of Incorporation Fees, Taxes, etc 316 et seq. Table of the Income-Yielding Capacity of Stocks 320 Tables of the Interest-Yielding Capacity of Bonds 321 et seq. PART I. PRIVATE CORPOEATIONS: DEFINITION, ADVAN- TAGES, LEGAL STATUS. MODERN BUSINESS CORPORATIONS. PRIVATE CORPORATIONS: DEFINITION, ADVANTAGES LEGAL STATUS. § 1. Corporation: Definition. 2. Kinds of Private Corporations. 3. By Wliat Laws a Private Corporation is Governed. 4. Incorporation in More than One State. 5. Special Acts of Incorporation. 6. Difference Between a Private Corporation and a Joint Stock Company. 7. Advantages of Incorporation. 8. Two Tlieories of the Duty of a State in Creating a Corporation. §1. CORPORATION: DEFINITION. According to contemporary practices, a corporation is an association of natural persons, or of other legally constituted persons (other corporations), authorized by law to act as a unit, under a corporate name, for the accomplishment of certain definite and prescribed purposes. It is a "person" con- stituted by law, separate and distinct from its stockholders, and, in a certain sense, is a citizen. Actions at law may be main- tained against it the same as against a. natural person. "Com- pany" is the word commonly used in speaking of a corporation, though it is wider in its definition and may refer to a partner- ship, or a firm, or to a joint stock association, as well as to a corporation. A corporation has its origin in an agreement be- tween individuals, but incorporation becomes effective only through the operation of a special charter or a general enabling act, whose provisions are accepted by the execution of the agreement, called the articles of association. 1 li MODERN BUSINESS CORPOruVTIONS. §2. KINDS OF PRIVATE CORPORATIONS. Private corporations are classified (1) "for profit," or (2) "not for profit/' Tlie first are for money-making purposes and include commercial, or business, or industrial corporations, such as manufacturing, refining, mercantile corporations ; and finan- cial, or moneyed corporations, such as banks, trust companies, and insurance companies; and transportation corporations, such as railroads, steamship, telegraph, and telephone companies ; and development companies, such as mining, oil and stone quarry companies. Corporations "not for profit" include benevolent and religious associations, certain colleges and schools, club- houses, and the like. Quasi-public or franchise corporations are those which operate under franchises that usually relieve them, in some measure, from competition, and which the general pub- lic desires to patronize so far as convenient or necessary. These are public utility corporations, such as railroad, street car, tele- graph, telephone, electric light, gas and heating companies. § 3. BY WHAT LAWS A PRIVATE CORPORATION IS GOV- ERNED. All the states have general enabling acts relative to corpora- tions. A business corporation usually has all the powers granted it by the state under whose laws it was organized, and it is gov- erned primarily by the laws of that state. It does business in other states by sufferance, but no matter what are the corpora- tion laws of other states in which it may do business, it is not usual, so far as charter rights are concerned, that restrictions are imposed upon it other than the restrictions imposed by its parent state. As it is impossible for a parent state to give extra- territorial force to its laws, however, so far as a company does business in another state than that in which it is organized, that state has the power to impose on the capital or interest represented in its territory the same restrictions that apply to corporations organized under its own laws. Insurance companies and banks, building and loan associations, and other financial companies, and steam railw^ay corporations are more frequently corporation: definition, advantages, legal status. 3 regulated by the individual states in which they do business than are otlier kinds of corporations. Citizens of a state whose laws stringently regulate the organization of corporations under its authority may organize under the laws of a state which gives liberal privileges to corporations and may then usually do business in the state of their residence with all the privileges their charter grants. It has not been determined that congress possesses, under the constitutional right to regulate interstate commerce, the power to charter corporations which do an interstate business. It makes a practice of chartering national banks and certain other corporations under the authority of the constitution to maintain the national physical existence. But it is as a means of executing powers of the national government, and not as an end, that congress creates a corporation. Professor Wilgus, of the Uni- versity of Michigan, argues very well in a monograph entitled A National Incorporation Law, that congress has the power to create corporations which are engaged in interstate busi- ness. § 4. INCORPORATION IN MORE THAN ONE STATE. Sometimes a company, or what is to all intents and purposes one company, is incorporated under the laws of several state^;. This happens in the case of railways that have interstate lines. The charters are the same, or similar, in the several states, and all the lines are managed by one governing body. Under former rulings it was held that the several corporations maintain a sep- arate and individual identity. Judge Seymour D. Thompson sa^^s in his work on corporations: "This casuistry was not suited to the practical needs of a business people; and conse- quently the court which first propounded it was compelled to abandon the doctrine. * * * Accordingly the doctrine of the court now is that several states may, by competent legisla- tion, unite in creating the same corporation or in combining several pre-existing corporations into a single one ; that one state may make a corporation of another state, as thus organized and 4 MODERN BUSINESS CORPORATIONS. conducted, a corporation of its own as to any property within its territorial jurisdiction ; and that a state may hy an enabling act authorize a cor])oration created in anotlier state to build and use a railroad within its own limitations without creating a new corporation." Ordinary private business corporations are not concerned in the ability of a corporation to be the creature of more than one state. § 5. SPECIAL ACTS OF INCORPORATION. The creation of corporations by special legislation is now gen- erally prohibited by the state constitutions, but a few years ago all corporations were so created. The territories are prohibited by federal statute from granting private charters. In some in- stances where special charters are prohibited by statute, the pro- hibitory legislation applies only to certain kinds of corporations. Current legislation tends to limit the field in which private cor- porations may be created by special act. It would be an extraor- dinary private business corporation that could not be organized satisfactorily under the existing laws of one of our common- wealths. § 6. DIFFERENCE BETWEEN A PRIVATE CORPORATION AND A JOINT STOCK COMPANY. A joint stock company is a partnership, composed of numerous partners, which has the following features in common with a corporation: (1) Continuousness, so that any member may transfer his shares (with or without the consent of the other members), and thus introduce a new partner without dissolving the previous business body. (2) A board of directors or trus- tees controls the body, and no member of the company has agency to act for the company as whole. It differs from a corporation in that the members of the joint stock company are liable for the debts of the company jointly and severally as in a partner- sliip, whereas tlic members of a corporation are not liable for the debts of their organization, except when made so by statute, or when special qualifications have been made rendering them lia- CORPOKATIOX : DEFINITION", ADVANTAGES, LEGAL STATUS. 5 ble. And it also differs in that a joint stock company sues and defends in the name of an oflficer empowered to sue and defend, while a corporation sues and defends under its corporate name. A joint stock company may exist without express authority from a state, as it is created by contract. In many states, however, such companies are provided for by statute. The joint stock com- pany is an infrequent form of American business association. § 7. ADVANTAGES OF INCORPORATION. The first advantage of incorporation is that of continuous suc- cession, or indefinite duration. Unless it becomes insolvent, or voluntarily dissolves, or tlie term of its existence, fixed by law, expires, the corporation remains a business "person." Any for- tuitous vicissitudes, such as a disagreement of stockholders, in- solvency of stockholders, death of a stockholder or disability in any other direction, does not affect the life of the corporate body. This intact condition is rendered possil^le in ordinary business corporations through the shares of stock which repre- sent each shareholder's interest in the business, and which may be transferred indefinitely without the act of transference, per se, affecting the corporation in the least. A second advantage is that, in providing the funds for establishing and running a busi- ness, the capitalization may be divided almost indefinitely, so that people of small means as well as those of large may contrib- ute their sliare of funds and receive their share of dividends on their contribution. The stock of a corporation may have a par value of $1, $50, or $100 per share, the most common amounts, or any other amount the incorporators may elect, if minimum and maximum amounts are not prescribed by state law. In financial, mercantile, manufacturing and transportation corporations the par value is usually $100, while in mining and oil companies the par value is often $1 per share. Small investors frequently specu- late in development companies to the extent of $25 or $50, whereas if they were compelled to pay $100 per share they could not join in the company. In mining ventures it is fre- quently the case that half the stock is taken in small subscrip- b MODERN BUSINESS CORPORATIONS. tions. Another advantage of incorporation is that the stock representing the holder's share may be used as collateral security for borrowed money. A partner cannot use his interest in a busi- ness as security for a loan in the way of a pledge. Where there is actual value behind it, stock is also more readily marketable than a partnership interest and may be transferred by the sim- ple method of indorsement. When an individual or firm wants to sell a large and established business which produces a fair and uniform income, the easiest way to do this is by incorporat- ing the business. The larger a business is the more difficult it is to find buyers. By incorporating, interests in the business may be sold to many buyers and probably a larger price can be realized than if the business had been sold to a single buyer or to two or more partners. When an individual requires money for his business, by incorporating and selling stock he avoids the dangers that come from admitting partners. The limited lia- bility feature of a corporation is one of its chiefest advantages. A subscriber to stock in a commercial corporation is liable only to the par value of the stock purchased. If it is issued "full paid" in bona fide payment for property or services, he is not liable unless fraud is provable in the matter of the valuation of the property or services. In banks, trust companies, and other financial institutions a double liability is usually imposed, making the stockholder liable in double the amount of his total holdings as expressed by the par value of a share multiplied by the number of shares held. Thus the sul)scriber to stock always knows how much he is risking in taking it, and no one who buys his stock is liable for more than the original holder. But in a partnership the partners are jointly and severally lial)le to the extent of all their possessions for the debts of the firm, less the amount of the legal exemption for debts, and for all other lia- bilities. For instance, if a partner, even through haste or mis- take, makes an oral agreement or signs a contract, if an em- ploye commits an error or is injured, or a man outside of the business suffers damages by carelessness on the part of the firm in protecting the public from the machinery or the apparatus of corporation: definition, advantages, legal status. 7 its business, or from carelessness of an employe, all a partner's means stands as security for a judgment against the firm guilty of such inadvertence or whose agent or employe is guilty. The vicissitudes which may overtake a partnership are many. A part- ner may withdraw his interest in a business, crippling or ruin- ing the business. He may be sick, become insane, or die, causing a dissolution without the consent of the other partners. If pri- vate creditors sdize a partner's interest, the firm is dissolved. If a partner dies, his administrator or executor may withdraw that partner's share. His estate then usually receives only the value of his portion of the tangible assets, without the added value of good will or earning capacity. On account of large earning capacit}', stock in a corporation may be worth twice its par value. An administrator sells the stock for the market price, and could not, if he would, considering the business to be well managed and solvent, withdraw from the business the interests represented by the stock. Moreover, one partner cannot sell his interest with- out the consent of the other partners in the business, nor can he take his children into the business, or, indeed, permit them to be- come apprentices, without the consent of the other partners. The prestige and good will of an unincorporated company may attach to one of the firm, while they are more likely to be identi- fied with the company in case of incorporation. And by no means the least advantage, the corporate form of business ad- ministration offers a uniform, orderly, well-defined and systema- tic plan of procedure, a mechanism for the conduct of business, that, when properly used, is as superior to the partnership form as is a modern locomotive to a locomotive of fifty years ago. So, when large interests are at stake, the corporate form of associa- tion is safer and more satisfactory. § 8. TWO THEORIES OF THE DUTY OF A STATE IN CEji;- ATING A CORPORATION. In a report which a committee on corporations made to the legislature of IMassachusetts in 1903 there were set forth two general theories, as revealed by the state laws bearing on cor- 8 MODERN BUSINESS CORPORATIONS. porations, as to a state's duties in creating corporations. The first is the old theory that, being creatures of the state, corpora- tions should be guaranteed by it to the public in particulars of responsibility and numagement ; the second is the opposite, mod- ern theory that, in the absence of fraud in a corporation's crea- tion or government, the common business corporation should be permitted to do anything that an individual may do. Under the former theory, the capital stock of the corporation was, in the law, considered a guarantee fund for the payment of creditors as well as a means of conveniently measuring the interest of the individual owners of the corporation. There resulted from this theory the principle that the capital stock, being in the nature of a guarantee fund, shall be paid for at its par value in actual cash, and other provisions protective of creditors, such as that wherein is provided that the debts of a corporation shall not exceed its capital stock, a provision designed in the interests both of creditors and stockholders, who are looked after as care- fully as if, when connected with corporation matters, they are wards of the state. Other provisions of laws enacted under this theory limit the par value of shares, make stockholders liable in excess of their actual or contracted investment, and impose on directors liability for debts of the corporation which may arise out of the ordinary chances of business. The results of this system are that technical and sometimes dishonest means are created for avoiding the laws, and capital organizes itself under the more liberal states, states wherein frequently not any of the capital is represented or the business transacted. The states having these laws have failed in their attempts to give the intended security to creditors and stockholders, and the de- cisions of the courts under these laws are confused. Under the modern theory, the state owes to persons who deal with corpora- tions no duty to look after the solvency of corporate business en- terprises, nor to the stockholders to protect them from the conse- quences of going into such concerns, the idea being that in the case of ordinary business corporations, the state's duty ends in providing clearly that creditors and stockholders shall be able at all times to secure the precise facts concerning the organiza- COKI'OHATION : UEFIMTIOX, ADVANTAGES^ LEGAL STATUS. 9 tion and management of such corporations, and especially that full publicity shall be given to all the details of the original organization. Charles A. Conant says in his book entitled Wall Street and the Country : "It is a question whether the protection of the investor in the future should not proceed along the lines of his economic education rather than along the lines of new re- strictions upon cor[)orations. Just so far as the government re- lieves the citizen of the obligation of looking out for himself, it promotes a condition of dependence upon the state which is detrimental to genuine economic progress." In the last decade many radical changes have taken place in the industrial and economic conditions of the United States. The aggregating tendency of capital has resulted in the organization of thousands of corporations. Some of the states have recognized the neces- sity of providing for the fullest development of the legal entity of the business corporation and have enacted laws which con- cede the rights and privileges of that entity. New Jersey, Dela- ware, Maine, and South Dakota adopted liberalized corporation laws, and were followed by New York, Massachusetts, the Dis- trict of Columbia, Connecticut, West Virginia, Nevada, Arizona, Virginia, New Mexico, and Washington. Several states now have commissions at work revising their corporation laws. PART II. THE FORMATION AND ORGANIZATION OF A PRI- VATE CORPORATION. 11 THE FORMATION AND ORGANIZATION OF A PRIVATE CORPORATION. § 9. Who May Form a Private Corporation. 10. Fortuitous Association of Individuals. 11. Definition of Promoter, and the Promoter's Functions. 12. Promoters' Profits. 13. Fiduciary Relation of Promoter to Prospective Corporation. 14. Responsibility of Fiduciary Relation and Recovery for Breach. 15. Promoter's Fraudulent Representations or Concealment, and Liability Therefor. 16. Failure of Organization of the Corporation and Promoter's Liability. 17. Corporation's Liability for Services Rendered by Promoter. 18. Promoter's Lack of Agency. 19. Contracts Made with Promoter. 20. Inter-relation of Promoters. 21. Aiders and Abettors of a Fraudulent Promoter. 22. Where to Incorporate. 23. Special Advantages and Disadvantages in the Corporation Laws of the Liberal Commonwealths. 24. Relation to the Creating State of a Corporation Whose Prin- cipal Office and Business are Located in a Foreign State. 25. A Corporation's Relation to Foreign States. 26. Capitalization: Definition. 27. Determining the Amount of Capitalization. 28. More Things in Regard to Stocks and Bonds to be Considered Before Capitalizing. 29. Capitalizing at Less Than Real Value. 30. Placing Stocks and Bonds. 30a. Financial Banking and Trust Organization. 31. The Stock Exchange. 32. The Sale Price of Stocks and Bonds With Reference to Time of Issue. 33. Changing a One-Man Business or Partnership into a Corpora- tion. 34. Proper "Valuation of Private Business or Partnership Assets, Patents, and Other Property to Safely Constitute Stock Ex- changed for Them Full-Paid. 35. Stock Subscriptions. 13 14 MODEEN BUSINESS CORPORATIONS. THE FORMATION OF A PRIVATE CORPORATION. § 9. "Who May Form a Private Corporation. Three or more natural persons (the expression "natural per- sons" means men or women, in contradistinction to "artificial persons," such as corporations) of legal age may come to- gether for the formation of a corporation. Sometimes one or more of the number must have citizenship in the state under whose laws the corporation organizes. Married women may be corporators if the statutes of the state in which the corporation is organized have removed the common law disabilities of mar- ried women. Any natural person capable of contracting may be a corporator. Partnerships, corporations, minors, persons men- tally incompetent, may not be original subscribers to stock, though, by transference, they may come into possession of stock and may hold it. The personality, previous business success, and reputation for integrity of the corporators often have much to do with the sale of stock after a company has been incor- porated, so that a promoter should usually look beyond the mere ability of a person to furnish money for his enterprise. § 10. Fortuitous Association of Individuals. It may be desirable that a partnership concern be changed into a corporation, in which case the partners alone, or with friends or other investors, become the corporators. Or a person may have a plan for business which he communicates to his friends, or to any persons having sufficient means to take stock, who may agree to join him in the formation of a corporation. Bankers and capitalists have frequent opportunity to know of desirable manufacturing businesses, or transportation or development schemes, and, when satisfied of the comparative safety and of the reasonable prospects for good returns, choose a few of their friends and acquaintances and offer them the opportunity to put in money to furnish the funds necessary to start the company. Usually the banker or capitalist does not make any commission FOiaiATIOX AND ORGANIZATIOX OF A PRIVATE CORPOHATIOX. 15 or profit because of his little work in getting the necessary capi- tal in addition to what he puts in. He does not go far out of his way to get the additional money. Tlie association of himself and the other incorporators is largely fortuitous. He knows sev- eral people witli money to invest, and he sets before them the plans of the compan3\ They invest or do not invest as they choose, without having been especially sought out and having had applied to them the particular and enthusiastic persuasion that the professional former of corporations would use. Formation by Promoters. § 11. Definition of "Promoter," and the Promoter's Functions. The word "promoter" has not yet a legal definition, but is a business term familiar in corporate finance. A promoter, in busi- ness practice, is one who seeks fields for investment in new enter- prises or in the extension or diversification of established indus- tries, and, for a consideration, forms and organizes a corpora- tion to develop the particular field he has chosen. The promoter commonly attends to everything connected with the floating of an enterprise. In the first place he finds an enterprise with prospects of good returns on the money to be invested; he em- ploys technical experts in the line of industry to prepare the figures of cost and prospective returns, so he and those to be interested with him may know as exactly as may be what they have and what they may expect ; he prepares a prospectus based on the expert's figures; he secures legislation, where that is necessary; he secures options and leases, where they must be secured. In short, he "assembles" the proposition. Then he employs a corporation lawyer to prepare the articles of incorpora- tion, and secures the necessary subscribers to the articles, sees that the articles are recorded and filed, that the certificate of in- corporation is issued, and pays the incorporation costs ; he sells the stock of the company directly to the public, or to bankers or other underwriters whom he has usually provided for before or- ganizing the corporation, and ordinarily he takes his own profit out in stock. His relation to the corporation is fiduciary. g 16 MODERN BUSINESS CORPORATIONS. § 12. Promoters' Profits. The promoter has to create value to entitle him to profit. He provides a new or original means of making money, and makes the means productive through the de- velopment of a "going" concern for the utilization of that means. His profit, though large, is legitimate profit. It is arrived at usu- ally as follows. From the figures of the technical expert on the proposition, the promoter arrives at a conclusion as to the total net profits of the business when it has been developed. If he is a conservative man, he capitalizes his business on the basis of its average earning capacity with only enough "water" to provide for increased earnings. If the proposition was one worth his ef- forts, it was a proposition which could be capitalized at a figure greatly in excess of what he paid for it in its undeveloped con- dition, and also in excess of this cost price and the development cost combined. The difference between these costs and the sum which he receives for the stock represents his profit. If options have been paid for before the property has been bought, their cost usually comes out of the promoter's profit. As a rule, the earning capacity of his proposition is such that the promoter can capitalize so as to provide sufficient working capital and sell the common stock at from fifty to seventy-five cents on the dollar, which is desirable to facilitate the sale, and still have for him- self a margin of profit of from fifteen to thirty per cent of the capital stock. He is perhaps offering stock that will some time net the investor six to twenty per cent. The promoter is equipped for his work by his resourcefulness in finding new and worthy enterprises, and ability to harmonize interests and handle men, by his financial connections, and his business experience generally. To combine the original resources for wealth and the money to develop them, he works according to system, going out to find the resources, perhaps, and making definite and extensive effort to secure the funds for operation. The association of in- dividuals in the promoter's corporation is not fortuitous, but is the result of the work of a trained business agent, the promoter, who is working for his own profit, and is earning his profit by assembling the business proposition and by securing the incorpo- rators and other investors. I'ORMATIOX AND OKGAXIZATIOX OF A I'UIVATE COUPOKATIOX. 17 § 13. Fiduciary Bclation of Promoter to Prospective Corpo- ration. Before the organization of a corporation the promoter of that corporation is regarded as a trustee for those who shall be entitled to act for it, and can be held to this fiduciary relation until the corporation has been in existence and engaged in busi- ness for a year, wlien responsibility for the relation ceases. Hence, when the corporation comes into existence the promoter must make a full and fair disclosure of all his acts as promoter. and he must include a disclosure in full of what he is to receive as compensation for bringing the company into existence. § 14. Eesponsihiliti/ of Fiduciary Relation and Recovery for Breach. The corporation which the promoter organizes is an ar- tificial child of the promoter which is of age at birth. To give this child an independent being, the promoter is bound to give his corporation a board of directors which, in its dealings with him, will act for the corporation in its capacity of a separate and independent being whose interests may or may not be the inter- ests of the promoter.* The promoter is bound in law not to take any secret or unfair advantage of the child. Hence he must make to the board of directors or to the stockholders or other governors, when his corporation is organized, a full and fair dis- closure of his transactions previously performed for the corpora- tion and his interest in each of them, much as the guardian of a child makes to the court when the child becomes of age. Money or property this father had received before the birth of the child he must account for, as having been held in trust by him. It has been held that a statement in a prospectus of the promot- er's interest in the transactions is a sufficient disclosure. All facts necessary to determine the desirability of a property for * If, however, the truth has already been disclosed to those who join with the promoter in the organization of the company, there is authority (Lagunas Nitrate Co. v. Lagiinas Syndicate, L. J. Ch. 699, L. T. Rep. N. S. 334) for a modification of this principle to the effect that duty is not incumbent on the promoter to provide his corporation with an Independent board of directors. Mod. Bus. Corp.— 2 18 MODERN BUSINESS COKPOKATIONS. purchase constitute a full and fair disclosure. Methods of vio- lating the fiduciary relation include the purchase of property at one price and the sale of that property to the corporation at a higher price, the receiving by the promoter of a bonus or commission from a vendor for negotiating the sale of the ven- dor's property to the corporation, secretly retaining the dif- ference in prices, or the bonus or commission. These are the most common violations of the fiduciary relation. The profits in such cases are held to belong to the corporation and can be recovered by suit against the promoter. When, however, the pro- moter of the corporation which takes the property was owner of the property before the fiduciary relation began, what he paid for it is, in the absence of fraudulent representations and pro- vided the stock subscribers had opportunity to examine the prop- erty, not a matter for disclosure, since, in buying the property, he acted for himself. And, if a promoter, having an option on property, sells to his corporation at a profit, where, in the sub- scription papers or in other form of notice he says he has an op- tion and will sell the property to the corporation for a certain price, and no representations were made as to the price he paid for the property, he does not have to account for the profits. § 15. Promoier's Fraudulent Representations or Concealment, and Liability Therefor. A promoter is not liable for representa- tions made in good faith with an actual and honest belief in their truth unless he agrees to guarantee his representations. But if he makes unqualified assertions without knowing whether or not they are true, he is liable. If he fraudulently misrepresents or negatively conceals facts which it is his duty to disclose, one who sufl^ers loss may recover from him. If subscriptions to stock are obtained by misrepresenting or concealing facts, subscribers may recover damages. If the misrepresentation is by way of a pros- pectus, damages may be recovered the same as if the misrepre- sentations were made by word of mouth. In English law, after shares of stock have been transferred from the original purchaser, damages cannot be recovered by the second purchaser for mis- representations in a prospectus unless the second purchaser saw FOnaiATION AND ORGANIZATION OF A TKIVATE CORPORATION, 19 the prospectus before he purcliased tlie shares. American deci- sions hold that it is not necessary that misrepresentations should have been communicated directly to the person who was induced thereby to purchase shares ; it is sufficient that the misrepresenta- tions deceived any person who came to know of them. A pro- moter is likewise lialde for negative concealments which have the same effect as misrepresentations. When a promoter conceals from a corporation that he is interested in a sale of property, and is the actual vendor of the property to the corporation, and real- izes a profit from the sale, the corporation may have the sale rescinded and may recover the money paid for the property. It has been held that where a promoter is held to account for secret profits he is entitled to a set-off to the amount of expenses he has incurred in good faith in promoting the corporation, — for ad- vertising, brokers, options, etc., but not for any sums he has dis- pensed fraudulently. § 16. Failure of Organization of the Corporation and Pro- moters Liability. If a promoter fails in his attempt to organize a corporation he is liable to subscribers for stock for any sum of money received from them, unless he has used the money in for- warding the project with the knowledge and consent of the sub- scribers. If the subscribers have agreed with a promoter that they will share losses with him if the project fails, they cannot recover in full. If subscribers agree to the application the pro- moter makes of their money, they have no recourse, unless the project was a swindle and they did not have knowledge of this fact until after they had acquiesced in the application of the money. § 17. Corporation s Liability for Services Bcndered by Pro- moter. It is a rule with many apparent exceptions that a cor- poration is not liable for a promoter's services or expenses in- curred by him in bringing the corporation into existence unless the corporation's charter or a statute so provides. A promoter is reasonably safe,' however, in rendering services and expending deposits received from stock subscriptions, for decisions practi- 20 MODEItN" BUSINESS COKPORATIOXS. cally establish the principle that services or expenses which are necessary to the existence of a corporation and the benefits of which it must accept if it exists at all, must be paid for by the corporation. The logic of these decisions is not clear-cut and the contact of the decisions with established legal principles is faulty. In order that the corporation be bound for such services and expenses, it has been held that they must have been necessary, reasonable, and for the benefit of the future corporation, and must have been performed or incurred under a contract with the promoter and with the expectation that they be paid for or paid by the corporation itself, and not by the individual corporators. When all the corporators request services to be rendered, and no other persons are added to the list of corporators or stockholders thereafter, it has been held that the corporation is liable for the value of the services. Where other persons join the corporators after the request, whether they join as corporators or stockhold- ers, the corporation is not liable. § 18. Promote/s LacJc of Agency. A promoter is not agent for a corporation to be organized, because the principal is not in existence. He cannot affect the em1)ryo corporation by his repre- sentations or assertions or by contracts made for it. But he prac- tically becomes agent by adoption when, after the corporation comes into existence, it adopts contracts or agreements made in its behalf or accepts the benefits of such contracts or agreements, having knowledge of them and having had opportunity to decline them. Legally speaking, he does not, however, become agent in fact, for, in order to adopt the engagements made by the pro- moter in a manner otlier than accepting their benefits, such cor- porate action is necessary as wdien the corporation makes a con- tract in its own behalf. That is, the corporation enters into a new contract through its officers or governing body. It has also been held that an engagement made by a promoter which would not, in an organized company, necessarily be made by formal action of directors or trustees, but might be made by the presi- dent or manager, may be adopted without the formality of con- currence by the directors or trustees. FORMATION' AND OKOANIZATIOX OV A IMMVATE CORPOItATIOX. 21 § 19. Contracts Made Vt'illi rromoter. So far as the future corporation is concerned, contracts or engagements made with a promoter have been held to amount only to a proposition for a contract with the corporation to he organized. So that when a subscription to capital stock has been given a promoter before the corporation is organized and there was an acceptance, and the corporation later comes into existence and accepts the sub- scription by issuing the subscriber's certificate, offering him an opportunity to vote his stock, or otherwise recognizing him as a subscriber, the subscriber is bound for payment. It has already been seen that a corporation may adopt a promoter's contracts and therefore become liable for them. But a promoter is him- self liable for engagements contracted in the name of his cor- poration until it comes into actual existence and until it adopts them either impliedly by accepting the benefits under tliem, or by action of an officer or of the governing body. In case the cor- poration is not formed, the promoter is personally liable for all contracts he has made, and, if there are several promoters, each is liable for contracts he has made or in whose making he has concurred. If, however, a creditor waives his right against a promoter and agrees to look to the corporation to pay when it shall be formed, the promoter is not liable. When it has been ar- ranged that the creditor shall look only to the promoter for pay, the corporation cannot be held liable on the contract. A part- nership arrangement may be made among promoters, when each is liable and all are liable as are partners. In general, a cor- poration may affirm and enforce its promoter's contracts for its own benefit. § 20. The Inter-Relattoii of Promoters. The relations that promoters assume among themselves is a matter of discretion. According to the manner of their association together they will be governed by the law as it applies to individuals or to partner- ships, and it is a matter for the promoters to determine which they prefer. Care should be taken by an unexperienced person who undertakes the role of promoter that he does not assume any 22 MODERN BUSINESS CORPORATIONS, liabilities he does not care to assume througli lack of knowledge of what may constitute a jDartnership agreement. §21. Aiders and Abettors of a Fraudulent Promoter. Any one who assists a fraudulent promoter or shares in the proceeds of his fraudulent scheme is liable with the promoter. § 22. Where to Incorporate. Tlie corporation laws of the various states are constantly changing, so that it is necessary, in any large or intricate busi- ness, to present the question of where to incorporate to a compe- tent corporation law^'er. If the business is small and simple it is usual to procure a charter from the state wherein the business operates and the incorporators live, unless the laws of that state are antagonistic to the purposes of the incorporators. Busi- nesses which are large, with large capital and intricate corporate purposes, usually incorporate under one of the states or terri- tories whose laws are liberalized. Several of the common- wealths may present to a prospective corporation similar ad- vantages in laws, or one may ofEer some special advantage which it is desirable a particular company should have. In investigating the business corporation acts of a commonwealth under which a company may wish to incorporate, some of the things one may take note of are the policy of the commonwealth toward domestic and foreign corporations; the statutory length of life of corporations; legislative control over private corpora- tions; the corporate purposes permitted in reference to those desired ; amount of capitalization and the par value of the stock permitted; the amount of stock required to be subscribed and paid before beginning business ; power to issue preferred stock ; time within which capital stock must be paid up ; assessability of stock ; power to create debts ; number, residence and qualifica- tions of directors; whether all incorporators may be non-resi- dent ; whether stockholders' and directors' meetings must be held in the commonwealth where a charter is procured; whether the principal office may be maintained outside of the commonwealth where the company may be organized ; whether the corporation FORMATIOX AND ORGANIZATION OF A TRIVATE CORPORATION. 23 is allowed to hold stock in other corporations ; whetlier stock may be issued legally in exchange for property or services instead of for cash ; whether the appraised value by the board of directors of property or services paid for by issuance of stock is conclusive upon the creditors of the corporation who seek, in case of in- solvency, to enforce an alleged liability for unpaid stock ; ease or difficulty with which the charter may be amended; publicity required as to the condition of a corporation organized under the laws of that state ; extent of stockholders' and of directors' lia- bility ; whether there is an inheritance tax on stock, and whether imposed on residents or non-residents ; ease or difficulty with which the corporation may be dissolved ; whether a voting trust may be created ; the amount of annual franchise tax, if any, and other taxes; initial expense. It is well, also, at the same time to investigate the laws of all states in which the company expects to do business with reference to the terms and conditions under which foreign corporations may do business in them. Further, it is sometimes important to incorporate in a state where the particular points of advantage of which the incorporating com- pany is availing itself have come up in litigation and have been judicially sustained. Adjudicated laws have more permanence than those whose status has not been determined. The tables of incorporation fees, taxes, etc., in the appendix are self-ex- planatory and useful. § 23. Special Advantages and Disadvantages in the Corpora- tion, Laws of the Liberal Commonwealths. Arizona. Advan- tages : stock may be issued for money, property, or services ; di- rectors' meetings may be held outside of territory ; low organiza- tion fees ; no annual existence franchise tax. Disadvantages : stockholders' meetings must be held in the territory ; laws unad- jndicated. Connecticut. Advantages: stock may be paid for in cash or l)y property, and judgment of directors is final as to value of property, in absence of fraud ; incorporat jrs may be non-resi- dent ; no annual franchise tax ; corporations may hold stock in other corporations. Disadvantages : stockholders' meetings 24 MODERN BUSINESS CORPORATIONS. must be held in the state; no statutory provision for permit- ting directors to hold meetings outside of state; inheritance tax on stock, except where there is no such tax in the state where decedent lives. Delaware. Advantages: stockholders' and directors' meet- ings may be held outside the state, if provision is made in the by-laws; stock may ])e issued for services rendered, as well as for cash and property; incorporators may be non-resident; corporations may hold stock in other corporations; bondholders may be permitted to vote. Disadvantages: one director must live in Delaware; collateral inheritance tax on stock, which ap- plies to residents and non-residents ; annual franchise tax. District of Columbia. Advantages: very small cost of incor- porating ; no franchise or inheritance tax. Disadvantages : ma- jority of trustees (correspond to directors) must live in the district; cannot issue stock for service; ten per cent, of capital stock must be paid in before beginning 1)usiness ; annual reports to be filed and published, and shall include amount of capital paid in and amount of existing debts; corporations cannot buy stock in other corporations; corporations organized under this law cannot sue in the federal courts, not being citizens of any state ; laws unad judieated. Maine. Advantages: stock may be issued for services, prop- erty, or cash, and judgment of directors is conclusive as to value in absence of fraud ; incorporators and directors may be non-resi- dent ; directors' meetings may be held outside of state ; corpora- tions may acquire stock in other corporations ; low organization fee. Disadvantages: stockholders' m.eetings must be held in the state; collateral inheritance tax; small existence franchise tax. Massachusetts. Advantages: incorporators and directors may be non-resident ; directors may meet outside of state ; stock may be issued for services, property or cash. Disadvantages: stock- holders' meetings must be held in the state ; no authority to cor- porations to hold stock in other corporations; detailed annual report required; collateral inheritance tax. Nevada. Advantages : incorporators and directors may be non- resident; stockholders' and directors' meetings may be held out- FOKMATION AND OKGAXIZATION OF A I'UIVATE CORPORATION. 25 side of the state; stock may bo issued for property, services, or cash, and judgment of directors is conclusive, etc. ; no inherit- ance tax ; action of majority of stockholders or directors may bo valid without regular meeting; bondholders may be given the right to vote; cumulative voting allowed; no annual franchise tax (except retaliatory tax) ; low organization foes. Disadvan- tages : No particularly undesirable provisions. New Jersey. Advantages : incorporators may be non-resident ; stock may be issued for property or cash, and judgment of direc- tors is conclusive, etc. ; directors' meetings may be held outside of the state, if by-laws so provide; corporations may hold stock in other corporations ; cumulative voting permitted ; voting trust may be created; laws well adjudicated. Disadvantages: stock- holders' meetings must be held in the state; one director must live in the state ; annual franchise tax ; collateral inheritance tax (does not apply to non-residents) . New York. Advantages : stock may be issued for labor, prop- erty, or cash, and judgment of directors is conclusive, etc. ; direc- tors' meetings may be held outside of state; corporations may hold stock in other corporations ; cumulative voting permitted ; voting trust may be created ; laws well adjudicated. Disadvan- tages : stockholders' meetings must be held in the state ; one in- corporator and one director must reside in the state ; one-half of the capital stock must be paid in within a year from incorpora- tion ; exacting reports, on request ; detailed books of account of business required ; direct and cumulative inheritance tax ; there may be disadvantages in the income franchise tax in specific in- stances. South Dakota. Advantages : stockholders' and directors' meet- ings may be held outside of tlio state; stock may be issued for cash, services, or property ; no annual existence franchise tax ; no inheritance tax ; cumulative voting permitted ; low incorporation fees. Disadvantages: one-third of the incorporators must reside in the state ; corporations have no authority to hold stock in other corporations ; detailed record of business transactions and reports of meetings of stockholders and directors, embracing all acts done and ordered to be done, must be kept in corporation office. 26 MODERN BUSINESS CORPORATIONS. and be open to inspection of creditors ; published annual reports of indebtedness due to and by the corporation, number and amount of dividends paid, and net amount of profits ; life of cor- poration but twenty years. Virginia. Advantages: incorporators and directors may be non-resident ; stock may be issued for cash, services, or property, and judgment of directors is conclusive, etc. ; directors' meetings may be held outside of the state ; corporations may hold stock in other corporations ; cumulative voting allowed ; bondholders may be given right to vote; no books required in state. Disadvan- tages : annual meetings of stockholders must be held in the state ; collateral inheritance tax on stock. West Virginia. Advantages : gtockholders' and directors' meet- ings may be held outside of the state ; incorporators and directors may be non-resident ; stock may be issued for services, property, or cash, and judgment of directors is conclusive, etc. ; corpora- tions may hold stock in other corporations ; no books required to be kept in the state ; cumulative voting allowed ; action of major- ity of directors may be valid without calling a regular meeting of the board. Disadvantages: ten per cent, of the amount sub- scribed by each incorporator must be paid in before signing the articles of association ; collateral inheritance tax on stock. New Mexico. Advantages : directors may meet outside of ter- ritory ; no stockholders' liability for unpaid stock, provided a cer- tificate to that effect is filed with articles and the fact is published as provided — except as to the stock with which the corporation commences business; directors may make assessments on shares till par value shall have been paid ; cumulative voting for direc- tors is permitted; corporations may hold stocks and bonds of other corporations ; stock may be issued for property purchased, and certain corporations may take stock and bonds in other cor- porations in payment for labor and materials; "any corporation which shall have more than one kind of stock, may, by so provid- ing in its certificate of incorporation, confer the right to choose the directors of any class [with respect to the time for which they shall serve] upon the stockholders of any class or classes, to the exclusion of the others" ; no annual franchise tax, etc. Dis- FOiaiATIOX AND ORGAXIZATIOX OF A PRIVATE CORPORATION. 2( advantages: one director in New ]\Icxico required; stock and transfer books required to be kept in territory ; minimum capital stock, $2,000 ; stockbolders' meetings required to be lield in regis- tered office in the territory — but may be held by agent through proxies. This act (approved March 15, 1905) was copied in general from the New Jersey laws. Filing fees are about one- half those in New Jersey. Porto Kico, also, has a liberal incorporation law based on the New Jersey code. § 24. Relation to the Creating State of a Corporation Whose Principal Office and Business are Located in a Foreign State. The legal side of this subject has already been touched upon. A corporation is governed by the laws of the state which creates it, but is subject to the legal restrictions of the states where it does business. In order that the parent state may continue to exercise jurisdiction over its corporations, they are usually obliged to maintain in that state an office where, and a resident agent upon whom, process may be served. Where a resident di- rector is necessary under the law, process may be served on him. In some of the states where there are such requirements as these, certain persons make a business of acting as resident agent or director for domestic corporations whose principal business office and manufacturing or other kind of plant or business is located in a foreign state. Certain "trust companies," organized for this particular service, furnish their place of business as the resident office of such corporations and designate some member of their company as the resident agent or director, charging a yearly fee of about ten dollars. The office maintained in the creating state is the domiciliary office of the corporation in the sense that it is the parental home office, though not any of the actual commer- cial business of the corporation may be conducted from it. In those parent states where stockholders' meetings are required to be held within the boundaries of the state, stockholders' meetings may be held in the domiciliary office. Otherwise the office may be of no use except as a place designated to the secretary of state 28 MODERN BUSINESS CORPOUATIONS. where a summons may be served. If a portion of the business of the corporation is transacted in the parent state, the business office of the corporation will serve every purpose, provided there is a resident agent connected with it. Some states require that correct books of account of business transactions and a book con- taining an up-to-date list of stockholders, their residence, and their number of shares, listed severally, shall be kept at the office in the parent state; that the corporation shall report annually such items as the amount of capital stock and the proportion actually issued ; how much was paid in cash, how much other- wise, and in what way ; the amount of debts, and of assets ; the amount of dividends made, declared, and paid; the amount of capital employed or represented in the state, etc. Such non- resident domestic corporations, organized under the laws of the liberal states, pay an existence franchise tax and may in addition be taxed on the capital represented by property located and busi- ness transacted in the state. So far as the capital represented by the business transacted is concerned, however, the liberal states have not generally exercised their right to impose a tax, thereon in the case of non-resident domestic business corpora- tions. Eailway, insurance, banking, and other transportation and financial corporations are taxed according to special statutes. The expression, "existence" franchise tax, a tax paid to maintain the right of existence, is used to distinguish the tax placed by the par- ent state on domestic corporations from the business franchise tax, or license tax, placed on foreign corporations by foreign states, by payment of which tax the corporations maintain the right to do business in the foreign states. § 25. A Corporation's Relation to I^oreign States. A foreign state is any state other than the one under whose laws a corporation is formed. Since a corporation can have no legal existence outside the boundaries of the state in which it was created, it can exercise none of its business functions or privileges in any other states except through the courtesy and consent of the other states. The "rule of comity" is the prevailing FORMATTOX AXD OROAXIZATIOX OF A PRIVATE CORPORATIOX. 29 courteous and consenting recognition of corporations foreign to the state in which they are exercising a right to do business. The rule of comity is part of the common law and is binding except wher^ modified by the statutory law of the several states. Subject to the limitations imposed by the national constitution, a state may prescribe any conditions upon which a foreign cor- poration may do business within its territory. Most of the states have put a statutory limitation on this rule for the protection of their citizens from the acts of irresponsible foreign corpora- tions and for the purpose of raising revenue for granting the right to do business. The kind of business referred to is the com- mercial business out of which a corporation makes its profit and not those acts which the stockholders or corporators perform in creating or maintaining the corporate existence. Where a com- pany maintains an agency or warehouse and sells goods in a for- eign state, it is considered as doing business in that state. Part of the corporate assets are represented in the state, materially in the case of manufacturing and mercantile corporations, and by business transacted and protected in the case of insurance and other financial companies. The mere taking orders for goods by a traveling salesman, or isolated and largely fortuitous transac- tions of business without the intention of continuing business, do not constitute "doing business" in the legal sense. Where, however, a traveling salesman carries articles which he sells direct, without referring an order to the home office to be filled, that act comes within the meaning of "doing lousiness." Some- times the busiuess is such that a state requires that the foreign corporation shall maintain an office in the state and provide an agent or agents upon whom process may be served. The object of requiring a resident agent is to bring the corporation within the jurisdiction of the stale in which it is seeking to do business, so tliat it may sue and be sued there. The object of requiring an office is that a place may be furnished where the agent may be found and where a summons may be served on him. These provisions facilitate legal actions against a foreign corporation, which might otherwise be able to make the service of process extremsly difficult. It is provided that corporations may have 30 MODERN BUSINESS CORPORATIONS. license to do business upon compliance with certain conditions. The laws of the states are not uniform in their treatment of for- eign corporations. Progressive legislation is in the direction of imposing on foreign corporations the same restraints and qualifi^ cations for business that apply to domestic corporations. Justice to domestic corporations demands this. Among the qualifica- tions necessary in one or more states are that a certified copy of the articles of incorporation and the by-laws, and a list of names and residences of the officers and directors, the location of the domiciliary or principal office, the date of the annual meeting and meeting for election of officers and directors, shall be filed with the secretary of state, or other proper state or county officer ; that a statement shall be made of the capital stock paid in in cash, and of that otherwise paid in, and how it was paid, and the capital represented in the state by corporate property located and by business transacted in the state ; that an annual report shall be made which shall include the amount of debts, or an amount which they do not exceed, the amount of assets, or an amount which they at least equal, and the amount of dividends declared or paid; that any substantial changes in any of the foregoing shall be reported to the secretary of state ; that the books of ac- count of business transacted by the corporation shall be kept at the state office or be forthcoming from it (seldom) ; that a stock- book, with complete information as to stockholders and stock, must be kept at the corporation's office or at the office of a transfer agent in the state, and that the book shall be open to inspection by any stockholder, judgment creditor, or authorized officer of the law; that a resident agent shall be appointed and that an authen- ticated copy of his appointment and of his acceptance and a cer- tificate of the location of his residence or office shall be filed with the secretary of state or other proper officer ; that certain sundry fees or other qualifying fees shall be paid, and also annual taxes on the amount of corporate property or capital represented by cor- porate property located and business transacted in the state, or on some other basis ; that a corporation cannot transact business in the state nor sue without having obtained a certificate of au- thority to do business. Some states have passed what are known FORMATION AND ORGANIZATION" OF A PRIVATE CORPORATION. 31 as retaliatory statutes, wliicli ])rovi(lc tliat foreign corporations socking to do business in the territory of those states shall pay the same fees and taxes and comply with the same conditions that the domestic corporations of those states would be required to meet in the domiciliary states (the states under whose laws corporations are created) of those foreign corporations. Some states provide that a foreign corporation shall appoint in writ- ing their secretaries of state or commissioners of corporations attorneys upon whom process may be served, dispensing with the necessity of any other agent. The fractional proportion of capi- tal represented by property located in a foreign state and by the business transacted there, where that is the basis on which in- corporation fees are based, may be computed by taking the busi- ness in that state in a given period, plus the property located therein, as a numerator, and the entire business of the company for the same period plus the entire property, as a denominator. The fraction represents the proportion of the capital stock on which incorporation fees or taxes must be paid in that state. If all the business of a company is transacted in a foreign state, the entire capital stock will form the basis for charging fees. § 2G. Capitalization: Definition. (1) In a general sense, the capitalization of a corporation means the par, or face, value of all the stocks, common and pre- ferred, which it has been authorized to issue, and of the bonds which are issuable; that is, all the apparent funding resources of the corporation. (2) But in a stricter sense, it is all the actual capital realized from the sale of stocks and bonds, the capital with which the corporation equips itself for business and which it uses in operating. Thus, a company capitalized for $1,000,000 may sell all its securities, stocks and bonds, at such prices that the average price will be but sixty cents on the dollar of nominal capitalization. It will thus have for equipping and operating $600,000 instead of $1,000,000. Or, it may sell $800,000 of securities at par and keep $200,000 of stock unis- sued, or turn it into treasury stock. It still has a nominal capi- 33 MODERX BUSINESS CORPORATIONS. talization of $1,000,000 but an actual capital of only $800,000. (3) In the statutor}' sense, when referring to the provision for a certain amount of capitalization in the articles of association, it means the amount of stock authorized to be issued, all of which amount may or may not be subscribed. Bonds are not mentioned in articles of association, except when the amount of bonded in- debtedness is limited by statute. (4) Or capitalization is all tlie actual property of the corporation. This is the definition used in tax statutes. (5) In yet another sense it is the par value of all the stocks and bonds issued, which is the amount of accountability acknowledged by a corporation. This is the definition generally accepted in financial practice. (G) In a legal sense, however, the lionds are not included in the capitali- zation, but are regarded in their true light of debt owing by the corporation. Capitalization, in the customary judicial interpre- tation, represents the joint and several interests of the stockhold- ers in the corporation, and so far it is synonymous with capital stock, and is, when the corporation is nevv^ and without losses or profits, the amount paid in, or subscribed to be paid in, by the subscribers to stock, either to forward the corporate business or to satisfy creditors of the corporation. ^Yhen the corporation has been doing business for some time, the term is sometimes modified to mean the sums paid in, or to be paid in by sub- scribers, with the addition of all profits and gains and the sub- traction of all losses and depreciations. Then the term is syn- onymous with "capital." In discussing corporate finance, the word will be used in the fifth sense, while in referring to the statutory provision of capital stock in the articles of association, the word will be used in the third sense. § 27. Determining the Amount of Capitalization. The amount of capitalization of a corporation is one of the chief things to be determined precedent to filing a charter. ^^Tien a professional promoter organizes a corporation, he has his plans so carefully made that he knows exactly what the capitalization should be. Unprofessional organizers should know as much and FORMATION AND ORGANIZATION OF A PRIVATE CORPORATION. 33 should have their knowledge hased on relial)le figures. It is necessary to the later financial stahility of the corporation. In the first place, unless the stock and honds of a corporation are sold at a premium, the par value of all the securities repre- sented in the total capitalization must equal the amount of money required to he invested in the real estate and plant of the corpo- ration, and part, if not all, of the running capital. Usually part of the running capital is borrowed from a bank, unless bonds can be sold which bear a lower rate of interest than would be necessary to pay the ])ank. When it is possible to provide part of the running capital through the sale of commercial paper, as may usually be done, it will often be found profitable to do so. Thomas L. Greene says: "With few exceptions, where firms [or companies] have command of practically unlimited sums of their own, business success is possible only through the aid of the money lender. Let us suppose, for illustration, that a firm employs a capital of $1,000,000 in its business, one half of which it borrows from the banks on its commercial paper at six per cent, interest. We will suppose also that the firm 'turns its capital over' six times a 3'ear, which is only another way of saying that its volume of annual sales is six times the capital. Assuming that our firm is enabled to earn two per cent, net upon its sales, the resulting profits, $120,000, amount to twelve per cent, upon the capital employed. As under our assumption the firm is paying six per cent, on the amount borrowed, or $30,000 yearlv, it folloAvs that the actual earnings upon the firm's own capital are $90,000, or eighteen per cent., a handsome return made possibly only through the borrowing of money which can be used to extend the volume of trade and to earn something for the firm over and above the perceutum of interest paid. The actual profits earned under this system vary in differ- ent trades, though usually the volume of business is in inverse proportion to the percentage of profit on the annual sales. What- ever sum we select or whatever earnings we assume, the principle underlying the illustration is the same. Of course a part of the capital of such firm or corporation in business must be invested Mod. Bus. Corp.— 3 34 MODEKN BUSINESS CORPORATIONS. in credits granted to ciifitomers and in some form of merchan- dise in stock." Tlie amount the company can borrow is the amount of its credit, based on the value of tlie company's prop- erty at forced sale, tlie value of the property in which the money borrowed is to be invested, and the business reputation of the proprietors and managers of the company. "To borrow one-half of one's necessary capital, in money or goods, is common," says Mr. Greene. The amount of credit a company deserves is the problem of commercial banking. Corporations just starting in Inisincss cannot usually command as large credit as old estab- lished businesses. The most conservative banks give preference in discounts to paper based on actual commercial transactions, over that secured by stationary capital. The most important function of a commercial bank is, by the use of the capital it controls, "^'to bridge over the periods of credit which necessarily intervene between production and consumption, in such a man- ner as to give back to each producer, or middleman, as quickly as possible, the capital invested by him in such products in order that he may use it over again in new production and new pur- chases." From these suggestions one may guess approximately the amount of money a company should be able to borrow on commercial paper, taking into consideration local financial con- ditions. The commercial paper of established concerns is fre- quently floated over the country among banks through the agency of brokers in commercial paper. The proper amount of capitalization, in the sense in which it includes bonds, is determined with reference to the net earning capacity of the future corporation. The average per cent, of net earnings of a period of years, calculated from the experience of other companies in the same line of business, but with reference to its own output, may be taken as a basis, thus allowing for years of low prices or slack demand ; or a more conservative esti- mate of earnings may be made altogether on the basis of the off years in price or demand, thus putting the company in a position where it can meet its interest obligations without ques- tion. If the company to be organized has special advantages over others in the same line of manufacture, advantages which will FORMATION AND OUGAXIZATION OF A I'HIVATP: COUPOltATION. 35 increase the average of its net earnings, tlieso also should be taken into account at a conservative iigure. l^ikewise, disadvan- tages, if there arc any, sliould be estimated and deducted. After calculating the amount of net profit, provision should be made out of it for a reserve fund for the purpose of extending, repair- ing, and improving the equipment of the company, for invest- ment in high class bonds which can be pledged as collateral for the raising of funds when money is scarce, or for use in forward- ing the "integrating" process by buying into companies which produce materials to be used by this company, or in obtaining favorable connections for controlling trade by obtaining inter- ests in other companies of the same kind. A careful business policy would require in a manufacturing concern a reserve of from forty to fifty per cent, of the net profits. An average an- nual reserve of at least fifty per cent, of the net profits for use in one or all these ways will put a company on a much safer competitive footing and thereby assure a much greater stability to the investment value of its stock. So, in figuring the capitali- zation, and particularly in connection with the interest on bonds and the dividends on cumulative preferred stock, not only the net profits should be considered, but also the policy with respect to reserves. The capitalization, therefore, should be placed at whatever figure the net profits, minus the reserve, will permit, figuring the amount of interest to be paid on bonds and the amount of dividends to be paid on preferred stock and estimating a fair dividend for the common stock. Then, as the earnings increase, the capitalization may be increased from time to time, or the bonded indebtedness may be increased. As to the amount of common stock, particular consideration should be taken of the fluctuations in profits of the business, so that the issue of com- mon stock shall be conservative. It is better that large divi- dends shall be paid in prosperous years on a conservative com- mon issue than that the company shall be so highly capitalized that in poor years the common shall receive little or no divi- dends. The end sought in capitalizing should be to make the market value of the stocks and bonds correspond as nearly as may be with their par value. The worth of the corporation. 36 MODEItX BUSINESS COKrORATIOXS. measured l)y its earning capacity, should correspond to the com- bined par value of its stocks and bonds. This is the ideal and comparatively practicable condition.* Where this is not the case, a company is either over-capitalized or under-capitalized. Where * There seems to be a tendency on the part of the public to limit the amount of capital of a corporation that is justly entitled to profits. Professor Emory Johnson, in American Railway Transpor- tation, points out that the earning capacity of a corporation cannot equitably or logically be made the sole criterion of value. To de- termine how much capital is justly entitled to profits (a social question the genesis and development of which will not be here discussed). Professor Johnson saj's the cost of reproduction of the corporate property and the earning capacity must be considered to- gether. "Definite rules for applying this method were worked out by a state tax commission in Michigan in 1900. In determining the value of the physical properties of the railroad — its roadbed, rolling stock, terminals, etc. — the cost of duplication was made the basis of valuation. The railroad company's franchise, the special concessions granted to it by public authority, and the special com- mercial opportunities upon which its business depended — that is to say, all the non-physical or immaterial elements of its property — were valued in accordance with their earning capacity. To ascer- tain the value attributed to these non-physical properties a method suggested by Professor Henry C. Adams was followed. According to the method devised by Professor Adams, the value of these imma- terial properties was determined (1) by deducting aggregate ex- penses of operation from gross earnings and adding the income from corporate investments; (2) by deducting from the total in- come thus obtained an amount properly chargeable to capital — that is, a certain per cent, on the appraised value of the physical properties — rents paid for the lease of property operated, and per- manent improvements charged directly to income; (3) by capitaliz- ing the remainder at a certain rate of interest. This method of valuation gives a basis for capitalization that seems to be equitable to all parties in interest — the public, the investor and the company." There are probably conservative corporations that will desire, in capitalizing, to take into consideration this tendency on the part of the public to hold corporations to more strict accountability for the value of property on the basis of earnings when considering the amount to be paid in taxes. Deducting the larger taxes would, of course, leave a smaller net profit from which to pay dividends and interest and would tend to reduce the capitalization. FORMATION AND OKGAXIZATION OF A PIUVATE COllPOHATIOX. 37 the comljincd par value of all the stocks aiul honds of a corpora- tion is greater than their market value based on profits, the cor- poration is over-capitalized. Where the value of a corporation's assets exceeds the par value of its securities, the corporation is under-capitalized. There are decided disadvantages attached to an extreme case of either condition. In over-capitalization, the difference between the f:ice vnhie of a company's securities and the selling value based on the profits of the business represents the amount of over-capital- ization, or "water." Extreme over-capitalization is a strong invitation to competition, if the over-capitalized company can pay dividends on its watered stock. It is an announcement to those having capital to invest that there is "Tbig" money in the business and that another company capitalized at a proper figure can earn a large return on the investment. Moreover, since the over-capitalized company has the interest on bonds and dividends on preferred stock to meet, it must maintain prices and will thus insure a greater steadiness in the market so far as its particular influence extends. Its competitors, of course, share in the advantages of stable prices. Besides, economic con- ditions may be such in certain years that an over-capitalized company cannot meet its interest and dividend charges, and then it is in danger of a receivership and, perhaps, of dissolution. But, on the other hand, in order that the ideal condition may be approximated without the constant change and expense incident to recapitalization, in starting a company prospective increase in earning capacity must be taken into account, and a reasonable present over-capitalization be provided on the basis of the proba- ble larger net earnings of the next few years in order to keep the securities of the company from selling at a premium proportion- ate to that increase in earnings. In general, as was said, it is desirable that an investment stock remain near par. Such a stock is better for investment purposes than one that commands a large premium in the market. There is always the possibility of unforeseen vicissitudes, such as com- petition, waning or greatly variable demand, and unfavorable legislation, which affect the profits of a company and cause the stock to fluctuate greatly in market value. The greatest degree 38 MODERN BUSINESS CORPORATIONS. of fluctuation naturally takes place in those stocks which com- mand the greatest premium on the oasis of earnings, or in those stocks which are held in so few hands that the "outsiders," small holders and speculators, may suspect manipulation on the part of the "insiders," those who hold the controlling interest in the capital stock and thereby control prices, and throw their stock on the market and perhaps cause a market panic with its not unusual collapse in prices. A stock which is kept near par will usually be more widely distributed than one which com- mands a large premium. The reason is that a stock that com- mands a premium of several hundred per cent, is not so readily marketable. If a person has $50,000 to invest, he will prefer to buy 500 shares of a stock at par, or a proportional numl)er of shares at a little more than par, than to pay a premium of four hundred per cent., making a price of five hundred, and get only one hundred shares. He can get stocks and bonds of satisfactory security which, for one reason or another, promise good dividends or pay good interest and which offer opportunity for increase in value without being subjected to so great and sudden changes in value as occur in the market because of rumors, or of the other vicissitudes mentioned. He buys these stocks to hold, not for speculation. Such stocks widely distributed and firmly held pro- tect the corporation not only in the way of maintaining a stable price for the stock, but also in enlisting the sympathy and active support of the stockholders in case unfavorable legislation is pro- posed, or there is other threatening calamity. The consideration with respect to danger from legislation applies most particu- larly to corporations that operate under pul)lic franchises. It may be asserted, therefore, in view of a desirability for wide distribution, that the price of a stock should not rise far above the point where it will stimulate the greatest demand. The point to which it may rise above the point mentioned is gov- erned by this consideration: a company desires to realize the largest returns possible from its securities when it places them on the market. Therefore, it will not seek, through the price of its stock, to create the greatest demand so much as it will endeavor to create a demand that will absorb all the stock and FORMATION AND OHGANIZATIOX OT A PRIVATE CORPORATION. 39 bond issue at a price that will realize the largest income for itself, and at the same time will effect a reasonable distribution of the stock. This principle applies as much to a speculative stock as to a more distinctly investment stock, because the higher the price the more money must be put up to carry it, while the demand is relatively less. Also, while the fluctuations are much wader in the high-priced stocks when they occur, they are not so frequent, and therefore they afford speculators fewer oppor- tunities for gain. Year in and out the most active stocks on the exchanges are those of moderate price, which fluctuate within small bounds. It follows from the fact of lesser demand for high priced stocks that an owner, in selling them, gets less in propor- tion than had he put his money in lower priced stocks. So the value of the stocks near par is greater to their holder than are the high priced stocks. They are also more valuable if he wishes to borrow money on them, both because of the larger proportionate value and because, on account of their narrower fluctuation, the necessary margin between collateral and the amount loaned is lessened. From all standpoints of financial economy, therefore, the desirability of a moderate priced stock is apparent. In providing the original capitalization, and in making subsequent alterations of the capitalization, these facts should be kept in mind. They apply in a general way to all large corporations which have in view a permanent and growing busi- ness. § 28. More Things in Regard to Stocks and Bonds to be Con- sidered before Capitalizing. A bond is a form of a promissory note, differing from a prom- issory note only in that each bond is one of a series of bonds, all of Avhich are alike in the amount of payment promised and in the language defining the conditions governing the issue. Usually the bond is a more formal species of commercial paper, bearing a seal and the signatures of witnesses as well as the signatures of certain officers of a company. The security of a bond may be entirely personal, or it may give the purchaser a 40 MODERN BUSINESS CORPORATIONS. lien on propert}^ Nearly all corporate bonds are secured, and the common form of security is a mortgage on the property of the company issuing them. The purchase of a corporate bond conveys no proprietary interest in a company, the bond being merely a credit obligation of the company. There may be first, second and third mortgage bonds issued on a property, and they are payable and collectible as are other forms of paper secured by mortgage, but with variation from other forms in legal procedure for collection. All stock conveys a proprietary interest in a company, but the stock is unsecured and can command only its proportion of the dividends declared out of the profits of a company after the satisfaction of credit obligations. Stock is an evidence of pro- portionate interest, while .a bond is a contract binding the com- pany issuing it to pay a specific amount of money. The inter- est on bonds must be paid when due, or the company's business may be closed ; but the directors may delay indefinitely the pay- ment of dividends on preferred or common stock without the owners having recourse, unless there is fraud. Common stock commands dividends and, sometimes, the exercise of proprietary corporate powers, without preference. Preferred stock com- mands a given dividend before any dividends are paid on com- mon stock, and, as a rule, is also preferred in the matter of distribution of assets on the dissolution of a company. In cor- porate finance bonds are generally issued to provide permanent capital at a low rate of interest. Preferred stock is provided because it is often more readily markct"-fvu<-^ /New York;" in the center thereof, so mounted as to be capable of J'^^^ impressing said words on paper in raised letters. ARTICLE V.i DIVIDENDS. ^A^ Section I. Dividends s^iall be declared annually, or oftener, as determined by the board of directors. The board of directors may, from time to time, transfer any part of the earnings of the company to a surplus fund, but no part of the net earnings of any year shall be set aside as surplus until after the payment of a dividend of at least four (4) per cent, upon the capital stock, out of the net profits. ARTICLE VI. I AMENDMENTS. Section I. These by-laws may be amended, repealed or altered at any regular meeting of the stockholders or at any special meet- ing called for that purpose upon due notice of its object by a major- ity vote of the stock represented at such meeting. Section II. The board of directors may suspend the effect of any by-lav.' and enact a substitute therefor, to be effective until the proposed amendment, repeal, or alteration shall be submitted to a stockholders' meeting, if two-thirds of all the directors shall vote in favor of such action. Section III. The board of directors may enact any additional by- laws not inconsistent with law or the by-laws adopted by the stock- holders. Form 12. By-Laws of United States Steel Corporation. ARTICLE I. stockholders. Section 1. Annual Meeting. A meeting of the stockholders of the company shall be held annually at the principal office of the company in the state of New Jersey at twelve o'clock noon on the 218 MODERN BUSINESS CORrORATIONS. third Monday in February in each year, if not a legal holiday, and if a legal holiday, then on the next succeeding Monday not a legal holiday, for the purpose of electing directors, and for the transac- tion of such other business as naay be brought before the meeting. It shall be the duty of the secretary to cause notice of each an- nual meeting to be published once in each of the four calendar weeks next preceding the meeting in at least one newspaper in each of the following places: Jersey City, N. J.; New York, N. Y. ; Chicago, 111., and Pittsburg, Pa. Nevertheless, a failure to publish such notice, or any irregularity in such notice, or in the publication thereof, shall not affect the validity of any annual meeting, or any proceedings at any such meeting. Section 2. Special meetings. Special meetings of the stock- holders may be held at the principal office of the company in the state of New Jersey, whenever called in writing, or by a vote, by a majority of the board of directors. Notice of each special meeting, indicating briefly the object or objects thereof, shall, by the secretary, be published once in each of the four calendar weeks next preceding the meeting in at least one newspaper in each of the following places: Jersey City, N. J.; New York, N. Y. ; Chicago, 111., and Pittsburg, Pa. Nevertheless, if all the stockholders shall waive notice of a special meeting, no notice of such meeting shall be required; and whenever all the stockholders shall meet in person or by proxy, such meeting shall be valid for all purposes without call or notice, and at such meeting any corporate action may be taken. Section 3. Quorum. At any meeting of the stockholders the holders of one-third of all the shares of the capital stock of the company, present in person or represented by proxy, shall consti- tute a quorum of the stockholders for all purposes, unless the rep- resentation of a larger number shall be required by law, and, in that case, the representation of the number so required shall con- stitute a quorum. If the holders of the amount of stock necessary to constitute a quorum shall fail to attend in person or by proxy at the time and place fixed by these by-laws for an annual meeting, or fixed by no- tice as above provided for a special meeting, called by the directors, a majority in interest of the stockholders present in person or by proxy may adjourn, from time to time, without notice other than by announcement at the meeting, until holders of the amount of stock requisite to constitute a quorum shall attend. At any such adjourned meeting at which a quorum shall be present any business may be transacted which might have been transacted at the meet- ing as originally notified. roRMS. 219 Section 4. Organization. The president, and in his absence the chairman of the executive committee, shall call meetings of the stockholders to order, and shall act as chairman of such meetings. The board of directors may appoint any stockholder to act as chairman of any meetings in the absence of the president and of the chairman of the executive committee. The secretary of the company shall act as secretary at all meet- ings of the Etockholders; but in the absence of the secretary at any meeting of the stockholders the presiding officer may appoint any person to act as secretary of the meeting. Section 5. Voting. At each meeting of the stockholders every stockholder shall be entitled to vote in person, or by proxy ap- pointed by instrument in writing, subscribed by such stockholder or by his duly authorized attorney, and delivered to the inspectors at the meeting; and he shall have one vote for each share of stock standing registered in his name at the time of the closing of the transfer books for said meeting. The votes for directors, and, upon demand of any stockholder, the votes upon any question before the meeting, shall be by ballot. At each meeting of the stockholders a full, true and complete list, in alphabetical order, of all the stockholders entitled to vote at such meeting, and indicating the number of shares held by each, certified by the secretary or by the treasurer, shall be fur- nished. Only the person in whose names shares of stock stand on the books of the company at the time of the closing of the transfer books for such meeting, as evidenced by the list of stockholders so furnished, shall be entitled to vote in person or by proxy on the shares so standing in their names. Prior to any meeting, but subsequent to the time of closing the transfer books for such meeting, any proxy may submit his powers of attorney to the secretary, or to the treasurer, for examination. The certificate of the secretary, or of the treasurer, as to the regu- larity of such powers of attorney, and as to the number of shares held by the persons who severally and respectively executed such powers of attorney shall be received as prima facie evidence of the number of shares represented by the holder of such powers of at- torney for the purpose of establishing the presence of a quorum at such meeting, and of organizing the same and for all other pur- poses. Section 6. Inspectors. At each meeting of the stockholders the polls shall be opened and closed; the proxies and ballots shall be received and be taken in charge, and all questions touching the qualification of voters and the validity of proxies, and the accept- ance or rejection of votes, shall be decided by three inspectors. 220 MODERN BUSINESS CORPORATIONS. Such inspectors shall be appointed by the board of directors be- fore or at the meeting, or, if no such appointment shall have been made, then by the presiding ofHcer at the meeting. If for any rea- son any of the inspectors previously appointed shall fail to attend or refuse or be unable to serve, inspectors in place of any so failing to attend, or refusing or unable to attend, shall be appointed in like manner. ARTICLE II. BOARD OF DIRECTORS. Section 1. Niimher, classification and term of office. The business and the property of the company shall be maijaged and controlled by the board of directors. As provided in the certificate of incorporation, the directors shall be classified in respect of the time for which they shall severally hold office, by dividing them into three classes, each class consist- ing of one-third of the whole number of the board of directors. The directors of the first class shall be elected for a term of one year; the directors of the second class shall be elected for a term of two years; the directors of the third class shall be elected for a term of three years. At each annual election the successors to the directors of the class whose terms shall expire in that year shall be elected to hold office for the term of three years, so that the term of office of one class of directors shall expire in each > ear. The number of directors shall be twenty-four, but the number of directors may be altered from time to time by the alteration of these by-laws.* In case of any increase of the number of directors, the additional directors shall be elected by the directors then in office; one-third of such additional directors for the unexpired portion of the term of one year; one-third for the unexpired portion of the term of two years, and one-third for the unexpired portion of the term of three years, so that each class of directors shall be increased equally. Every director shall be a holder of at least one share of the capital stock of the company. Each director shall serve for the term for which he shall have been elected, and until his successor shall have been duly chosen. At all elections of the directors the polls shall remain open for * In states where the number 'of directors is fixed by statute, or where the statute requires that the number be fixed by the articles of incorporation, this clause should be omitted. FOKMS. 221 at least one hour, unless every registered owner of shares has sooner voted in person or by proxy, or in writing has waived the statutory provision. Section 2. Vacancies. In case of any vacancy in the directors of any class through death, resignation, disqualification or other cause, the remaining directors, by affirmative vote of a majority thereof, may elect a successor to hold office for the unexpired por- tion of the term of the director whose place shall be vacant, and until the election of his successor. Such vacancy shall be filled upon and after nominations therefor shall have been made by the finance committee. Sectiox 3. Place of Meeting, etc. The directors may hold their meetings, and may have an office and keep the books of the com- pany (except as otherwise may be provided for by law) in such place or places in the state of New Jersey or outside of the state of New Jersey as the board from time to time may determine. Section 4. Regular Meetings. Regular meetings of the board of directors shall be held monthly on the first Tuesday of each month, if not a legal holiday, and if a legal holiday, then on the next suc- ceeding Tuesday not a legal holiday. No notice shall be required for any such regular monthly meeting of the board. Section 5. Special Meetings. Special meetings of the board of directors shall be held whenever called by the president, or by one- third of the directors for the time being in office. The secretary shall give notice of each special meeting by mail- ing the same at least two days before the meeting or by telegraph- ing the same at least one day before the meeting to each director; but such notice may be waived by any director. At any meeting at which every director shall be present, even though without any notice, any business may be transacted. Section 6. Quorum. A majority of the board of directors shall constitute a quorum for the transaction of business; but, if at any meeting of the board, there be less than a quorum present, a ma- jority of those present may adjourn the meeting from time to time. The affirmative vote of at least two-fifths of all the directors for the time being in office shall be necessary for the passage of any resolution. Section 8. Order of Business. At meetings of the board of direct- ors business shall be transacted in such order as, from time to time, the board may determine by resolution. At all meetings of the board of directors the president, or in his absence, the chairman of the executive committee, or in the absence of both of these officers, the chairman of the finance committee shall preside. 233 MODERN BUSINESS COBPORATIOXS. Section 9. Contracts. Inasmuch as the directors of this company are men of large and diversified business interests, and are likely to be connected with other corporations with which from time to time this company must have business dealings, no contract or other transaction between this company and any other corporation shall be affected by the fact that directors of this company are inter- ested in, or are directors or officers of, such other corporation if, at the meeting of the board, or of the committee of this company making, authorizing or confirming such contract or transaction, there shall be present a quorum of directors not so interested; and any director individually may be a party to, or may be interested in, any contract or transaction of this company, providing that such contract or transaction shall be approved or be ratified by the affirmative vote of at least ten directors not so interested. The board of directors in its discretion may submit any contract or act for approval or ratification at any annual meeting of the stockholders, or at any meeting of the stockholders called for the purpose of considering any such act or contract, and any contract or act that shall be approved or be ratified by the vote of the holders of a majority of the capital stock of the company which is repre- sented in person or by proxy at such meetings (provided that a law- ful quorum of stockholders be there represented in person or by proxy) shall be as valid and as binding upon the corporation and upon all the stockholders as though it had been approved or rati- fied by every stockholder of the corporation. Section 10. Compensation of Directors. For his attendance at any meeting of the board of directors, or of any committee of the board, every director shall receive an allowance of ten cents for every mile traveled by him for attendance at such meeting, and also the sum of twenty dollars for attendance at each meeting. The same mileage allowance shall be made to any officer who, by direc- tion of the board, or of the president, shall attend any such meet- ing. ARTICLE III. EXECUTIVE COMMITTEE AND FINANCE COMMITTEE. Section 1. The board of directors shall elect from the directors an executive committee and a finance comm,ittee, and shall designate for each of those committees a chairman, who shall continue to be chairman of the committee during the pleasure of the board of directors. The board of directors shall fill vacancies in the executive com- mittee or in the finance committee by election from the directors, and at all times it shall be the duty of the board of directors to keep FORMS. 233 the membership of each of such committees full, with due regard to the qualifications for such membership indicated in this article of the by-laws. All action by the executive committee, or by the finance com- mittee, shall be reported to the board of directors at its meeting next succeeding such action, and shall be subject to revision or alteration by the board of directors; provided, that no rights or acts of third parties shall be affected by any such revision or alter- ation. The executive committee and the finance committee each shall fix its own rules of proceeding, and shall meet where and as pro- vided by such rules, or by resolution of the board of directors, but in every case the presence of a majority shall be necessary to con- stitute a quorum. In every case the affirmative vote of a majority of all the mem- bers of the committee shall be necessary to its adoption of any reso- lution. The chairman and each of the members of the executive com- mittee shall receive such compensation for their services as from time to time shall be fixed by the finance committee and be approved by the board of directors. Section 2. The executive committee shall consist of six members, besides the president, and the chairman of the finance committee, each of whom, by virtue of his office, shall be a member of the executive committee. So far as practicable each of the six elected members of the executive committee shall be a person having, or having had, personal experience in the conduct of one or the other of the branches of manufacture or mining, or of transportation in which the company is interested; and, so far as practicable, the six elected members shall be taken equally from the three classes of directors. Unless otherwise ordered by the board of directors, each elected member of the executive committee shall continue to be a member thereof until the expiration of his term of office as a director. During the intervals between the meetings of the board of directors the executive committee shall possess, and may exercise, all the powers of the board of directors in the management and direction of the manufacturing, mining and transportation opera- tions of the company, and of all other business and affairs (except the matters hereinafter assigned to the finance committee) in such manner as the executive committee shall deem best for the inter- ests of the company, in all cases in which specific directions shall not have been given by the board of directors. During the intervals between the meetings of the executive com- 224 MODERN" BUSINESS COKFOKATIOXS. mittee the chairman thereof shall possess and may exercise such of the powers vested in the executive committee as from time to time may be conferred upon him by resolution of the board of directors, or of the executive committee. ' Section 3. The finance committee shall consist of four members, besides the president, and the chairman of the executive, each of whom, by virtue of his office, shall be a member of the finance com- mittee. So far as practicable each of the four elected members of the finance committee shall be a person of experience in matters of finance, and so far as practicable the four elected members shall be taken equally from the three classes of directors. Unless other- wise ordered by the board of directors, each elected member of the finance committee shall continue to be a member thereof until the expiration of his term of office as a director. The finance committee shall have special and general charge and control of all financial affairs of the company. The general counsel, the treasurer, the auditor and the secretary, and their re- spective offices, shall be under the direct control and supervision of the finance committee. During the intervals between the meetings of the board of directors, the finance committee shall possess, and may exercise, all the powers of the board of directors in the management of the financial affairs of the company, including its purchases of prop- erty and the execution of legal instruments with or without the corporate seal in such manner as said committee shall deem to be best for the interests of the company, in all cases in which specific directions shall not have been given by the board of directors. During the intervals between the meetings of the finance com- mittee, and subject to its review, the chairman thereof shall pos- sess, and may exercise any of the powers of the committee, except as from time to time shall be otherwise provided by resolution of the board of directors, or of the finance committee, but not of the executive committee. Except as otherwise provided by the by-laws, or by resolution of the board of directors, all salaries and compensations paid or paya- ble by the company shall be fixed by the finance committee. No director shall become a salaried employe of the company ex- cept by special vote of the finance committee. ARTICLE IV. OFFICERS. Section 1. Officers. The executive officers of the company shall be a president, a vice-president, or more than one vice-president, a FORMS. 235 general counsel, a treasurer, a secretary and an auditor, all of whom shall be elected by the board of directors. The board of directors may appoint such other officers as they shall deem necessary, who shall perform such duties as from time to time may be prescribed by the board of directors. • The powers and duties of the treasurer and secretary may be ex- ercised and performed by the same person. In its discretion the board of directors, by the vote of a majority thereof, may leave unfilled for any such period as it may fix by resolution any office except those of president, treasurer, secretary and auditor. All officers and agents shall be subject to removal at any time by the affirmative vote of a majority of the whole board of directors. All officers, agents and employes, other than officers appointed by the board of directors, shall hold office at the discretion of the com- mittee or of the officer appointing them. The finance committee shall have power to suspend the general counsel, the treasurer, the secretary and the auditor, and to remove any one in the department of the general counsel, of the treasurer, or of the secretary or of the auditor. The executive committee shall have power to remove all officers, agents and employes of the com- pany, except officers elected or appointed by the board of directors, and except officers, agents and employes in the department of the treasurer, of the secretary, of the general counsel or of the auditor. Section 2. Poioers and Duties of the President. The president shall preside at all meetings of the stockholders, and of the board of directors, and by virtue of his office he shall be a member (but not chairman) of the executive committee and of the finance com- mittee. Subject to the executive committee, he shall have general charge of the business of the company, including manufacturing, mining and transportation, may sign and execute all authorized bonds, contracts or other obligations in the name of the company, and with the treasurer or an assistant treasurer may sign all cer- tificates of the shares in the capital stock of the company. He shall do and perform such other duties as from time to time may be assigned to him by the board of directors. Section 3. Y ice-Presidents. The board of directors may appoint a vice-president or more than one vice-president. Each vice-presi- dent shall have such powers and shall perform such duties as may be assigned him by the board of directors. Section 4. The General Counsel. The general counsel shall be the chief consulting officer of the company in all legal matters, and, subject to the board of directors and the finance committee. Mod. Bus, Corp. — 15 226 MODERN BUSINESS CORPOEATIOXS. shall have general control of all matters of legal import concerning the company. Section 5. Powers and Duties of Treasurer. The treasurer shall have custody of all the funds and securities of the company which may have come into his hands; when necessary or proper he shall indorse, on behalf of the company for collection, checks, notes and other obligations, and shall deposit the same to the credit of the company in such bank or banks or depositary as the board of directors or the finance committee may designate; he shall sign all receipts and vouchers for payments made to the company; jointly with such other ofBcer as may be designated by the finance committee he shall sign all checks made by the company, and shall pay out and dispose of the same under the direction of the board or of the finance committee; he shall sign, with the president, or such other person or persons as may be designated for the purpose by the board of directors or the finance committee, all bills of ex- change and promissory notes of the company; he may sign, with the president or a vice-president, all certificates of shares in the capital stock; whenever required by the board of directors or by the finance committee he shall render a statement of his cash account; he shall enter regularly, in books of the company to be kept by him for the purpose, full and accurate accounts of all moneys received and paid by him on account of the company; he shall, at all reasonable times, exhibit his books and accounts to any director of the company upon application at the office of the company during business hours, and he shall perform all acts incident to the position of treasurer, subject to the control of the board of directors or of the finance committee. By virtue of his office the treasurer shall be assistant secretary. He shall give a bond for the faithful discharge of his duties in such sum as the board of directors or the finance committee may require. Section 6. Assistant Treasurers. The board of directors or the finance committee may appoint an assistant treasurer or more than one assistant treasurer. Each assistant treasurer shall have such powers and shall perform such duties as may be assigned to him by the board of directors, or by the finance committee. Section 7. Powers and Duties of Secretary. The secretary shall keep the minutes of all meetings of the board of directors, and the minutes of all meetings of the stockholders, and also (unless other- wise directed by the finance committee) the minutes of all com- mittees in books provided for that purpose; he shall attend to the giving and serving of all notices of the company; he may sign with the president in the name of the company all contracts author- FORMS. 227 ized by the board of directors, or by the finance committee, and, when so ordered by the board of directors or the finance committee, he shall affix the seal of the company thereto; he shall have charge of the certificate books, transfer books and stock ledgers, and such other books and papers as the board of directors or the finance committee may direct, all of which shall, at all reasonable times, be open to the examination of any director, upon application at the office of the company during business hours, and he shall in general perform all the duties incident to the office of secretary, subject to the control of the board of directors and of the finance committee. By virtue of his office the secretary shall be assistant treasurer. Section 8. Assistant Secretaries. The board of directors or the finance committee may appoint one assistant secretary or more than one assistant secretary. Each assistant secretary shall have such powers and shall perform such duties as may be assigned to him by the board ot directors, or by the finance committee. Section 9. Auditor. The auditor shall be the principal officer in charge of the accounts of the company, and shall perform such duties as from time to time may be assigned to him by the board of directors or the finance committee. Section 10. Voting upon Stocks. Unless otherwise ordered by the board of directors, or by the finance committee, the chairman of the finance committee or the chairman of the executive committee shall have full power and authority in behalf of the company to attend and to act and to vote at any meetings of the stockholders of any corporation in which the company may hold stock, and at any such meeting shall possess and may exercise any and all the rights and powers incident to the ownership of such stock and which, as the owner thereof, the company might have possessed and exer- cised if present. The board of directors of the finance committee, by resolution, from time to time, may confer like powers upon any other person or persons. ARTICLE V. CAPITAL STOCK — SEAL. Section 1. Certificates of Shares. The certificates for shares of the capital stock of the company shall be in such form, not incon- sistent with the certificate of incorporation, as shall be prepared or be approved by the board of directors. The certificates shall be signed by the president or a vice-president, and also by the treas- urer or an assistant treasurer. All certificates shall be consecutively numbered. The name of 228 MODERN BUSINESS COUPOUATIONS. the person owning the shares represented thereby, with the number of such shares and the date of issue, shall be entered on the com- pany's books. No certificate shall be valid unless it be signed by the president or a vice-president, and by the treasurer or an assistant treasurer. All certificates surrendered to the company shall be cancelled, and no new certificate shall be issued until the former certificate for the same number of shares of the same class shall have been surren- dered and canceled. Section 2. Transfer of Shares. Shares in the capital stock of the company shall be transferred only on the books of the company by the holder thereof in person, or by his attorney, upon surrender and cancellation of certificates for a like number of shares. Section 3, Regulations. The board of directors, and the finance committee also, shall have power and authority to make all such rules and regulations as respectively they may deem expedient con- cerning the issue, transfer and registration of certificates for shares of the capital stock of the company. The board of directors or the finance committee may appoint a transfer agent and a registrar of transfers, and may require all stock certificates to bear the signature of such transfer agent and of such registrar of transfers. Section 4. Closing of Transfer Books. The stock transfer books shall be closed for the meetings of the stockholders, and for the payment of dividends, during such periods as from time to time may be fixed by the board of directors or by the finance committee, and during such periods no stock shall be transferable. Section 5. Dividends. The board of directors may declare divi- dends from the surplus or net profits of the company over and above the amount which from time to time may be fixed by the board as the amount to be reserved as working capital. The dates for the declaration of dividends upon the preferred stock and upon the common stock of the company shall &e the days by these by-laws fixed for the regular monthly meetings of the board of directors in the months of April, July, October and Janu- ary in each year, on which days the board of directors, in its dis- cretion, shall declare what, if any, dividends shall be declared upon the preferred stock, and the common stock, or either of such stocks. The dividends on the preferred stock shall be payable quarterly on the fourth Wednesday next after the several dates of the declar- ation thereof. Section 6. Working Capital. The directors shall not be required in January in each year, after reserving, over and above its capital stock paid in as a working capital for said corporation, such sum. FORMS. 229 if any, as shall have been fixed by the stockholders, to declare a divi- dend among its stockholders of the whole of its accumulated profits exceeding the amount so reserved, and pay the same to such stock- holders on demand; but the board of directors may fix a sum which may be set aside or reserved, over and above the company's capital paid in, as a working capital for tlie company, and from time to time they may increase, diminish and vary the same in their abso- lute judgment and discretion.* Section 7. Corporate Seal. The board of directors shall provide a suitable seal, containing the name of the company, which seal shall be in charge of the secretary, if and when so directed by the board of directors or by the finance committee. A duplicate of the seal may be kept and used by the treasurer or by any assistant secre- tary or assistant treasurer. ARTICLE VI. AMENDME^'TS. Section 1. The board of directors shall have power to make, amend and repeal the by-laws of the company, by a vote of a ma- jority of all of the directors, at any regular or special meeting of the board, provided, that notice of intention to make, amend or re- peal the by-laws in whole or in part shall have been given at the next preceding meeting; or without any such notice, by a vote of two-thirds of all of the directors. Form 13. Common Form of Common Stock Certificate and Stub. United States of America — Incorporated under the laws of In- diana. NUJIBEB. SHARES. 17 50 The Kixg-Richardsox Manufacti-rixg Company, Indianapolis, Ind. This Certifies that Charles Bishop is the owner of fifty shares of the capital stock of The King-Richardson Manufacturing Company, of Indianapolis, transferable only on the books of the Corporation by the holder hereof in person or by attorney upon surrender of this certificate properly indorsed. In witness whereof, the said corporation has caused this certifi- cate to be signed by its duly authorized officers and to be [seal] sealed with the seal of the corporation this ninth day of May, A. D., 1901. Frank Richardson, John M. King, Treasurer. President. * This is a very poorly worded section. 230 MODERN BUSINESS CORPORATIONS. (Stub.) CERTIFICATE* No. 17. For fifty (50) Shares. Issued to Charlks Bishop, Indianapolis. Dated May 9, 1901. Frovi Whom Transferred Dated 190. . NO. ORIGINAL NO. ORIGINAL NO. OF SHARES CERTIFICATE. SHARES. TRANSFERRED. Received Certificate No. 17. For fifty (50) Shares this 10th day of May, 1901. Charles Bishop. Form 14. Common Stock Certificate Containing Notice and Terms of Preferred Stock Issue. United States of America — Incorporated under the laws of In- diana. NUMBER. SHARES. 54 ■ .. Clark & Roberts Company, Indianapolis, Ind. Main oflSce, Indianapolis, Ind. CAPITAL STOCK, COMMON STOCK, $150,000 $200,000 PREFERRED STOCK, 50,000 This Certifies that is the owner of shares of one hundred $100) dollars each of the commont Capital stock of the Clark & Roberts Company. This certificate is transferable only on the books of the company at Indianapolis, Ind., by the owner thereof, in person or by duly authorized attorney, upon its surren- der property indorsed. It is mutually agreed between the holder hereof and the Clark & Roberts Company and its stockholders as follows: The preferred * This form will also answer for the stub of a preferred stock certificate, but if both common and preferred stock have been issued the heading may specify the kind of certificate issued. t The word "Preferred" appears here on the preferred certificate of this company, which is the only difference in wording. FORMS. 331 capital stock is entitled to receive preferential dividends from the net earnings of the company at the rate of seven (7) per centum per annum, payable semi-annually, before any dividend shall be set apart or paid from the earnings of any period upon the common capital stock. Dividends upon the preferred stock shall be cumulative, and if the proportion of the net earnings set apart in any year for divi- dends shall not be sufficient to pay the dividend for such year at the rate of seven (7) per centum per annum upon said preferred capi- tal stock, then the same shall be made up from any profits of any later period. After declaring and providing for the payment of a semi-annual dividend of three and one-half (3%) per centum upon the preferred capital stock, together with arrearages of dividends due thereon, such portion of the remaining net earnings set apart for dividends may be used for paying dividends on the common capital stock as the board of directors may decide. The power to fix the amount to be reserved as working capital for the organization, and the power to declare dividends from the net earnings of the company are vested in the board of directors. The dividends upon the common capital stock of the company may be declared and made payable semi-annually or annually, as the board of directors may from time to time determine. The par value of the preferred capital stock, in the event of insolvency or dis- solution of the company, making necessary a distribution of the assets, shall be repaid in full after the payment of its obligations, before any sum whatever shall be distributed upon the common capital stock; but after a complete repayment of the par value of the preferred capital stock, together with arrearages of dividends due thereon, the common capital stock shall be entitled to receive the entire assets remaining. Preferred capital stock, in whole or in part, may, after twenty years from date of issue, at the time of paying any semi-annual dividend, be retired by the corporation at par, upon six months' notice in writing, by paying the owner or owners thereof the par value, together with any dividends due thereon. Preferred stock may be purchased and cancelled by the board of directors by agreement with the holder thereof, at any time after one year from the date of its issue. Witness the corporate seal of The Clark & Roberts Company and the signature of its president and treasurer. Dated: Indianapolis, Indiana, this day of , 190.. Treasurer. President. Shares $100 each. 233 MODERN BUSINESS CORPORATIONS. Form 15. Sentence Granting Additional Pro Rata Dividend to Preferred Stock. "This preferred stock is entitled to share pro rata with the com- mon stock in any dividend exceeding six per cent, on the whole stock of said corporation, both preferred and common." Form 16. Founders' Shares — Stock Certificate. Incorporated under the laws of New Jersey. Morgan Milling Company, Trenton, New Jersey. Capital Stock, $100,000. This certifies that is the owner of founders' shares, numbered (giving them), of one hundred dollars each, of the capital stock of the Morgan Milling Company. This certificate is transferable only on the books of the company by the owner thereof in person, or by duly authorized attorney, upon its surrender prop- erly indorsed. It is mutually agreed between the said company and the holder hereof that said founders' shares are subject to the provisions of a certain resolution adopted by the stockholders of said company on the day of , 1905, which provided for the creation and issue of not more than two hundred founders' shares of the par value of one hundred dollars each of the capital stock of said com- pany, subject to redemption as specified in said resolution. And the holder of this certificate acknowledges notice of all the provisions of said resolution, and hereby assents to the same and agrees to hold his said founders' shares evidenced by this certificate subject thereto. In witness whereof the said Morgan Milling Company has caused the names of its president and treasurer to be signed to this certifi- cate and its corporate seal to be affixed hereto. [seal.] Treasurer. President. Attest Secretary. Form 17. Certificate Form Used by Standard Oil Company. This is to certify that is entitled to shares of one hundred dollars each in the capital stock of the Standaid Oi^ FORMS. 233 Company, transferable on the books of the company in person or by attorney only on the surrender of this certificate and the pay- ment of all liabilities on the part of the holder to the company sub- ject to the provisions of law and the by-laws of the company. (Wit- nessed by signatures of president and secretary.) Form 18. Form of Assignment and Transfer on Back of Stock Certificate. For value received, I hereby sell, assign, and transfer unto Charles Holliday, of Indianapolis, twenty (20) shares of the capital stock represented by the within certificate, and do hereby irrevocably con- stitute and appoint Harry Alter my attorney to transfer the said stock on the book of the within named corporation with full power of substitution in the premises. Dated June 12, 1904. In presence of Richard Martindale. Leroy Scott, Witness. Form 19. First Mortgage Gold Bond of the Indianapolis and Cincinnati Traction Company. (Convertible from Coupon to Registered Bond.) The Indianapolis and Cincinnati Traction Company. First Mort- gage Five Per Cent. Gold Bond. No. 1263. Be it known that The Indianapolis and Cincinnati Traction Com- pany, incorporated under the laws of Indiana, for value received, promises to pay to the bearer hereof, or if this bond shall be regis- tered, then to the holder hereof registered according to the provi- sions hereinafter contained, without relief from valuation or ap- praisement laws, the sum of one thousand dollaRvS in gold coin of the United States of the present standard of weight and fineness, at the office of the Farmers' Loan and Trust Company in the city of New York, on the first day of July, 1933, and also to pay interest thereon in like coin at the rate of five per cent, per annum on the first days of January and July in each year to the bearer of the respective coupons for such interest hereto annexed upon presenta- tion thereof, at the time and place therein mentioned; but if the promisor shall make any default for six months in the payment of any interest hereon, or on any bond of this issue, the principal sum hereby secured shall become due and payable at any time thereafter while the interest remains in default, at the election of a majority 234 MODERN BUSINESS COKPOEATIONS. in interest of the holders of the bonds secured by the indenture hereinafter mentioned at the time outstanding. Both the principal and interest of this bond are payable without deduction for any tax or taxes which the promisor may be required to pay or retain there- from under any present or future law of the United States, or of the state of Indiana, or any county or municipality therein. This bond is one of a series of four thousand similar bonds, amounting in the aggregate to four million dollars, all of which are equally secured by an indenture of first mortgage, dated the first day of July, 1903, whereby all the property, real and personal, easements, rights, franchises, and privileges, present and future, of the Indian- apolis and Cincinnati Traction Company are mortgaged to the Farmers' Loan and Trust Company as trustee for the bondholders. No recourse shall be had for the payment of the principal or inter- est of this bond against any stockholder, officer or director of the promisor, either directly or through the promisor, by virtue of any statute, or by enforcement of any assessment or otherwise, and any and all personal liability of the officers, directors and stockholders of the promisor in respect of said bonds is hereby expressly waived and released by every holder hereof. This bond until registered shall pass by delivery. This bond may be registered in books to be kept for that purpose at the office of the trustee, in the city of New York, and if so registered will thereafter be transferable only upon the said books at the office of the trustee by the owner in per- son or by attorney, unless the last preceding registration shall have been to bearer and the transfer by delivery thereby restored, and it shall continue to be susceptible of successive registrations and trans- fers at the option of the holder, but such registration shall not af- fect the negotiability of the annexed coupons. This bond is valid only when the Farmers' Loan and Trust Company has indorsed hereon a certificate that it is one of the bonds in the said indenture specified. Witness the corporate seal of the Indianapolis and Cincinnati Traction Company and the signatures of its president and secretary on its behalf, the first day of July, in the year 1903. The Indianapolis and Cincinnati Traction Company, by Secretary. President. Trustee's Certificate. (On back of bond.) The Farmers' Loan and Trust Company hereby certifies that this FORMS. 235 bond is one of the series described in the within mentioned mortgage amounting in the aggregate to four million dollars. The Farmers' Loan aad Trust Company, Trustee. By , President. Form 20. Sinkings Fund Bond. [On the back the title as follows.] No The Keithsburg Bridge Company First Mortgage Six Per Cent. Sinking Fund Bond, $1,000. Guaranteed by the Central Iowa Railway Company. Interest payable June 1st and December 1st. Principal due Just 1st, 1925. Trustee's Certificate. — The Central Trust Company of New York hereby certifies that this bond is one of a series of bonds described in the mortgage or trust deed, within mentioned, and has been certi- fied by this company in accordance with the terms of said trust deed. Central, Trust Co. of New York, Trustee, by President. [On the face.] No $1,000. STATES OF ILLINOIS AND IOWA. THE KEITHSBURG BRIDGE COMPANY. FIRST MORTGAGE SIX PER CENT. SINKING FUND BOND. Guaranteed by the Central Iowa Railway Company. Know all men by these presents. That the Keithsburg Bridge Company, a corporation organized and existing under the laws of the state of Illinois and vested also with certain franchises conferred by an act of congress, approved April 26, 1S82, entitled "An Act to authorize the construction of a bridge across the Mississippi river at or near Keithsburg, in the state of Illinois, and to establish it as a Post Road," is indebted to the Central Trust Company of New York, or bearer, in the sum of one thousand dollars, lawful money of the United States of America, which the said Bridge Company promises to pay to the bearer hereof in the city of New York, on the first day of June, in the year one thousand nine hundred and twenty-five, with interest thereon at the rate of six per cent, per annum, payable in the like lawful money, at its office or agency in the city of New York, on the first days of June and December in each year, upon the presentation and surrender of the coupons here- to attached as they sevex'ally become due, as provided herein. And in case of default in the payment of any half-yearly instalment of interest which shall have become due and been demanded, and such default shall have continued six months after demand, or in case of default in the payment of any sum into the sinking fund, as here- 236 MODERN BUSINESS CORPOEATIOXS, inafter provided, the principal of this bond shall become due in the manner and with the effect provided for in the trust deed or mort- gage hereinafter mentioned. This bond is one of a series of six hundred bonds, numbered consecutively from 1 to 600, both inclu- sive, each for the sum of one thousand dollars, amounting in the aggregate to six hundred thousand dollars, all of like tenor, date and effect, and all equally secured by a trust deed or mortgage bear- ing even date herewith, duly executed and delivered by the said Bridge Company, and duly recorded in the proper offices in the states of Illinois and Iowa, and conveying to said Central Trust Company of New York, in trust, the bridge of the said Keithsburg Bridge Company, as the same is now, or may hereafter be, con- structed across the Mississippi river, from a point in or near Keithsburg, in the state of Illinois, to a point in or near the town- ship of Elliot, in the county of Louisa, in the state of Iowa, together with the approaches thereto on either side of said river, and all lands and real estate which said Bridge Company is or may be- come entitled to by reason of the construction of the said bridge, with the appurtenances thereto belonging; also, the rents, issues and profits of said bridge, so far as the same are not required to pay the necessary current expenses of maintaining, keeping in re- pair, and operating the said bridge. And also, all and singular the rights, privileges, corporate property and franchises of said Bridge Company, set forth in said trust deed or mortgage. This bond is entitled to the benefit of a sinking fund as provided by caid trust deed or mortgage, whereby the principal of said bond will be re- deemed in forty years from the date thereof. Bonds equal in amount to the accumulation of said sinking fund will be redeemed at their par value, annually, commencing after three years from the date hereof. This bond is also subject to allotment for payment and redemption, as provided in said trust deed or mortgage, on any day on which interest is payable thereon. Notice of the numbers of the bonds allotted for redemption will be published in two or more daily newspapers printed in the city of New York, for sixty days, at the expiration of which time the interest thereon shall cease. This bond is further secured by the guaranty of the Central Iowa Railway Company indorsed hereon, of the payment of the principal and interest thereof and of the sums payable into the sinking fund. This bond shall pass by delivery or by transfer on the books of the company in the city of New York, and such other places as said company may designate. After a registration of ownership certified hereon by the secretary of the company or its transfer agent, no transfer, except on the books of the company, shall be valid unless the last transfer shall have been to bearer, the FORMS. 237 bond to be entitled to successive registrations and transfers to bearer at the option of each holder. This bond is to be valid only when authenticated by the certificate of the trustee indorsed hereon. In -witness whereof, the said Keithsburg Bridge Company has caused its corporate seal to be hereto affixed, and these presents to be attested by its president and secretary, this first day of June, 1885. Secretary. President. [Also on the back.] Guarantee of the Central Iowa Railway Company. — The Central Iowa Railway Company, for value received, hereby guarantees the prompt payment of, and agrees to pay in the city of New York, all the coupons attached to the within bond as they severally become due; and also the sums payable into the sinking fund therein men- tioned; and also the principal of this bond at maturity, subject to the right to redeem the same before maturity. In witness whereof, the said Railway Company has caused its corporate seal to be hereto affixed, and the same to be attested by the signatures of its president and secretary, this day of , A. D. 19.. Secretary. President. Notice! — No writing on this bond except by an officer of the com- pany. DATE OF registry. IN WHOSE NAME REGISTERED. TRANSFER AGENT. [On the end, eighty coupons, numbered on the back, and dated each first day of June and December, from 1885 to 1925, the face of the first one reading:] Coupon No. 1. — The Keithsburg Bridge Company will pay the bearer Thirty Dollars, at its office or agency in the city of New York, on the first day of December, A. D. 1885, being six months' interest on its First Mortgage Bond No C. W. Osborne, Treasurer. Form 21. Income Gold Bond. $500 UNITED STATES OP AMERICA. $500 ATCHISON, TOPEKA AND SANTA FE RAILROAD COMPANY. FIVE PER CENT. INCOME GOLD BOND. No For value received. The Atchison, Topeka and Santa Fe Railroad 238 MODERN BUSINESS CORPORATIONS. Company promises to pay to bearer, or in case of registration to tlie registered holder hereof, the sum of Five Hundred Dollars, on the first day of July, one thousafid nine hundred and eighty-nine, together with interest thereon when earned at the rate of not ex- ceeding five per centum per annum, payable only out of surplus net earnings, if any, on the first day of September, in the year 1890, and upon the same day in each year hereafter, on the presentation and surrender of the coupons annexed and to be annexed hereto, as they severally mature, both principal and interest being payable in gold coin of the United States of America, of the present stand- ard of weight and fineness, or its equivalent, at the agencies of the said Atchison Company in the cities of Boston or New York, or at the office of Baring Brothers «S: Company, London, England. The principal of this bond is payable only after the principal and inter- est of all the general mortgage four per cent, bonds of the Atchison, Topeka and Santa Fe Railroad Company, dated July first, 1889, shall have been previously paid in full. Interest upon the principal sum of this income bond, if any is earned in any year ending June thirtieth, shall be paid upon the first day of September following, at a rate not to exceed five per centum per annum, from and out of the surplus net earnings only of the mortgaged property, provided that in the judgment of the board of directors of the Atchison Company such surplus net earnings shall be sufficient in amount to justify payment of interest on this income bond, and such payment shall be by said board of directors authorized to be so made. Such in- terest shall not be cumulative, and each successive holder of this income bond accepts the same subject to the agreement that the board of directors of the Atchison Company shall in their absolute discretion determine what are the surplus net earnings, if any, in any year ending June thirtieth, and applicable to such payment of interest, by deducting from the amount of the gross earnings during said year all operating expenses of every kind, and all fixed charges, including rentals of leased lines and other property, interest of all kinds, and taxes of all companies whose stocks are directly or in- directly pledged or mortgaged hereunder, and after providing for and deducting the amount of the interest upon and the sinking fund requirements of all bonds or obligations of the Atchison Company, including the above described general mortgage bonds, and of all bonds or obligations of other companies, the payment of the prin- cipal or interest of which has been guaranteed or assumed in whole or in part by the said Atchison Company, and after providing for and deducting the cost of the maintenance, renewals, repairs and improvements of the railroad, telegraph equipment, and appurte- nances of the Atchison Company, and of the railroads which at the FORMS. 339 date hereof or during the life of said income bonds may form a part of tlie railroad system of the Atchison Company. The Atchison Company may at any time at its pleasure redeem this bond at its face or par value by giving notice of said proposed redemption six months prior to the first day of September in any year by publica- tion once a week for three successive weeks in any newspaper of general circulation published in each of the cities of Boston, New York and London; and interest upon this bond, when so called for redemption, shall cease on and after the first day of September fol- lowing such publication. All the provisions of the said general mortgage are hereby expressly declared to be part of this bond and of every coupon hereto attached. No recourse shall be had for the payment of the principal or interest of this bond to any stockholder, officer or director of said Atchison Company, either directly or through the said Atchison Company, by virtue of any statute or by the enforcement of any assessment or otherwise. All payments upon this bond of both principal and interest are to be made without de- duction for any tax or taxes which said railroad company may be required to pay or to retain therefrom by any present or future laws of the United States of America, or any of the states and territories thereof, said railroad company hereby covenanting and agreeing to pay any and all such tax or taxes. This bond is one of a series of income bonds, coupon and registered, of like tenor and date, the payment of which is secured by a general mortgage or deed of trust, duly executed and delivered by the Atchison, Topeka and Santa Fe Railroad Company, the obligor, to the Union Trust Company of New York, Trustee, bearing date October fifteenth, 1889. This bond shall pass by delivery, or if registered, by transfer upon the trans- fer books of the company. After registration of ownership, certified hereon by the transfer agent of the company, the coupons shall re- main negotiable; but no transfer of this bond, except on the books of the company, shall be valid unless the last transfer is to bearer, which shall restore transferability by delivery, and it shall continue subject to successive registrations and transfers to bearer as afore- said at the option of each holder; or the holder may, at any time, at his option, surrender this bond and the annexed coupons to the company to be cancelled, and receive in exchange therefor a regis- tered bond of the same issue, and thereafter it shall not be trans- ferable to bearer, but the interest shall be paid to the registered holder. This bond shall be valid only when authenticated by the certificate hereon of the said trustee, or its successors in said trust, that it is one of the income bonds issued under and described in the said indenture of trust or general mortgage. In witness whereof, the said Atchison Company has caused its 240 MODERN BUSINESS CORPORATIONS. corporate seal to be hereto affixed and these presents to be signed by its comptroller or a deputy comptroller, and attested by an as- sistant treasurer, on this first day of July, 1889. Atchison, Topeka and Santa Fe Railroad Company, By Comptroller. Attest, Assistant Treasurer. [On the back.] No Atchison, Topeka and Santa Fe Railroad Com- pany $500 five per cent, income gold bond. Principal payable July 1, 1989. Interest non-cumulative, payable on the first day of Septem- ber in each year from the net earnings applicable thereto. Princi- pal and interest payable at the agencies of the company in the cities of Boston or New York, or at the office of Baring Brothers & Co-, London, England. Trustee's Certificate. — The Union Trust Company of New York hereby certifies that this bond is one of the series of income bonds issued under and described in the within named indenture of trust or general mortgage to this company as trustee, dated October 15, 1889. Union Trust Company of New York, Trustee. By , President. Notice! — No writing on this bond except by an officer of the com- pany. date of registry. in whose name registered. transfer agent. [On the end, one hundred coupons, numbered on the back, and dated each first of September, from 1890 to 1989, the face of the first one reading:] Coupon No. 1 — On the first day of September, 1890, the Atchison, Topeka and Santa Fe Railroad Company will pay to bearer in gold coin of the United States of America, or its equivalent, at its agen- cies in the cities of Boston or New York, or at the office of Messrs. Baring Brothers and Company, London, England, such portion of its surplus net earnings, if any, not exceeding twenty-five dollars, as shall in accordance with the indenture securing the same be then applicable to the payment of interest on its income bond. If there be no surplus net earnings applicable thereto, this coupon will then uecome void. — No George L. Goodwin, Assistant Treasurer. FORMS. 241 Form 22. Receivers' Certificate of Indebtedness. [Under date of June 19, 18S4, the following order was issued by the Supreme Court of New York: "It is ordered that Horace Russell and Theodore Houston, as receivers heretofore appointed in this action, be and they hereby are authorized, from time to time, to issue and sell, at a price not less than par, certificates not exceed- ing in the aggregcite five million dollars, made by them in the fol- lowing form, the blanks being filled: [Here follows the form given below.] It is further ordered, that said receivers be and they hereby are authorized to immediately is- sue and sell such certificates in such amounts, not exceeding in the aggregate three million dollars, as may seem to them advisable. And it is further ordered, that said receivers be and they hereby are authorized to use the proceeds of said certificates in their dis- cretion to pay their necessary and current expenses in the perform- ance of the duties of their trust, and sums now due to companies operating connecting lines of railroad upon contracts for the inter- change of freight or passenger business, and moneys due for right of way and depot or other grounds necessary for the proper man- agement and operation of said railroad, and moneys due or to be- come due upon the rolling stock and equipment of said railroad which must necessarily be paid to retain the possession, use and ownership thereof, and all moneys due and owing by the defendant railway company for labor and services rendered in operating said railroad since the first day of March, 1884, and money due for sup- plies purchased and used by said defendant in carrying on its busi- ness, and for rentals, and for terminal, ferry and depot expenses subsequent to that date, whether the same be represented by notes, made by said defendant, or not, and all taxes lawfully imposed upon the property of said defendant, and the proper expenses of said defendant in maintaining its organization and corporate existence. Said receivers, however, are not to pay out for right of way, or depot or other grounds, any sum exceeding in the aggregate the sum of two hundred thousand dollars, nor any sum for rolling stock or other equipment exceeding in the aggregate the sum of four hundred thousand dollars, without the further order of this court. And it is further ordered, that said receivers be and they are hereby authorized to execute and deliver all necessary lease-war- rants in the forms and at the times required by the existing con- tracts for the purchase of rolling stock and equipment made by said defendant railway company. And it is further ordered, that the certificates issued pursuant to Mod. Bus. Corp.— 16 243 MODERN BUSINESS CORPORATIONS. this order by said receivers shall, until full payment therefor, with interest, he a lien and charge on all the property covered by said mortgage prior to the lien of said mortgage, and that in the final order herein, before the discharge of said receivers, if any of said certificates have not previously been paid by said receivers, provi- sion shall be made for their payment." June 27, 1884, the court made a further order, including the following: "And the said re- ceivers be and they hereby are authorized and directed, until the further order of the court to the contrary, to keep and perform on the part of the said railway company all covenants and agreements in said contracts to be kept and performed by said railway com- pany, exactly the same as said railway company ought to keep and perform the same according to the terms of said contracts if said receivers had not been appointed."] No $ New York, West Shore and Buffalo Railway Company. Receivers' Certificate of Indebtedness. "This is to certify, that the bearer hereof is entitled to receive from Horace Russell and Theodore Houston, and their successors, as receivers of the property of the New York, West Shore and Buffalo Railway Company, covered by the first mortgage to the United States Trust Company of New York, as Trustee, but not personally, the sum of dollars, upon the production hereof, and indorse- ment hereon of such payments, on or before the first day of July, 1887, at the office of said receivers in the city of New York, and in- terest thereon from the date hereof, at the rate of six per centum per annum, payable on the first days of each January and July, un- less said sum and interest thereon, as aforesaid, be sooner paid by the receivers out of the moneys coming into their hands, from time to time, applicable thereto, or the moneys realized by them upon the sale of the mortgaged property in their hands. This certificate is one of a series of certificates, amounting in the aggregate to a sum not to exceed five million dollars, and issued or to be issued under the authority and by virtue of the order of the supreme court of the state of New York, and under the authority and by virtue of the order of the Circuit Court of the United States for the dis- trict of New Jersey, in equity, and for the purposes and objects therein mentioned, said orders being made on the days of June, 1884, respectively in actions in said courts, wherein United States Trust Company of New York is plaintiff and complainant, and said railway company is defendant. Said certificates to the amount secured thereby are hereby declared to be a debt of the re- ceivers incurred for the benefit and protection of the mortgaged property in their hands, and until full payment thereof, to be a lien FORMS. 243 and charge thereon prior to the first mortgage and the interest thereon. This certificate is not valid until countersigned by Frank- lin E. Worcester, treasurer of the receivers. "In witness whereof, we, as receivers aforesaid, but not person- ally, have signed this certificate this day of , one thou- said eight hundred and eighty- " Receivers of the property covered hy the first mortgage of the New York, West Shore and Buffalo Railway Company." Form 23. Voting Trust Agreement. Whereas, the undersigned stockholders of the Com- pany deem it to their interest that all the stock held by them jointly shall be voted as a unit upon all questions affecting the business and management of the said company, and. Whereas, (naming the trustees) have consented to hold and vote such stock on behalf of the stockholders. It is Hereby Agreed by and between the above named and under- signed stockholders (hereinafter called "the stockholders") and the above named trustees (hereinafter called "the trustees") that for a valuable consideration the receipt whereof is hereby acknowl- edged and in further consideration of the mutual covenants and agreements expressed in this instrument: The stockholders hereby assign, convey and transfer unto the trustees the number of shares of stock of the Com- pany, a corporation of the state of set opposite their respective names, to be held in trust by the said trustees for the respective stockholders, by whom it is severally assigned, their per- sonal representatives and assigns, upon the following terms and conditions. I. The said trustees shall hold, control and vote said stock jointly as if they were collectively the joint owners of all of said stock. II. They shall determine by the vote of the majority of the trustees then in office how said stock shall be voted upon any question at any time and every meeting of the stockholders. 244: MODEUX BUSINESS COiri'ORATIONS. III. All of said stock so held by the trustees shall be voted as a unit as decided by such majority vote of the trustees. IV. Any vacancy in the office of trustee as herein provided for, caused by death, resignation or other cause, shall be filled by election by the remaining trustees. And the person so elected shall perform all the duties and exercit^^e all the powers of a trustee as herein pro- vided for. V. Said trustees shall prepare and issue to the stockholders certifi- cates showing the amount of stock held on behalf of each stock- holder respectively. And the stock so held may be divided and trans- ferred in like manner as if it had not been assigned in trust, sub- ject to the rights and powers of the trustees under this assignment. But no such assignment or transfer of stock shall be effective for any purpose until after surrender of the certificate issued by said trustees and the issue of a new certificate to the purchaser or as- signee thereof. The trustees may appoint a transfer agent for the certificates issued by them and prescribe the fees which shall be paid by any holder or owner thereof for the transfer of his cer- tificate. VI. Said trustees shall collect and receive all dividends on the stock transferred to and held by them and shall immediately pay over the same to the holders of trust certificates representing such stock as their respective interests appear. The trustees shall not demand or receive any compensation for receiving and paying over such divi- dends. VII- The rights, duties and powers hereby conferred upon said trus- tees shall expire and wholly cease on the day of 190. ., and the trustees shall at said time assign and transfer to the persons who then hold trustees' certificates evidencing their owner- ship of shares of stock, the amount of stock to which each holder thereof is shown by his trustee's certificate to be entitled. VIII. Said trustees hereby accept the trust created by the above and foregoing instrument, and hereby undertake to hold, own and vote FORMS. 245 said stock as therein provided, and to re-transfer the same on the day of , to the holders of trustee's certificates, evidenc- ing their right to receive the same. They further undertake at all times to vote the said stock and exercise their powers as trustees in such manner as they shall deem to be for the best interests of the* stockholders of the Company. They further undertake to accept additional assignments of stock from any and all stock- holders of the Company and to permit any stockholder thereof to become a subscriber to this agreement. In witness whereof the subscribing stockholders and trustees respectively have hereunto eet their hands and seals this day of , 190. ., and the stockholders have set opposite their names respectively the number of shares of stock which they so assign and transfer to the trustees. NAMES OF TRUSTEES. NAJIES OF STOCKHOLDERS. NUMBER OF SHARES. Form 24. Notice of Stockholders' Annual Meeting. OflBce of the Company, No street, Chicago, III., December 31, 1905. Dear Sir — Notice is hereby given that the annual meeting of the stockholders of the Company will be held at the office of the company. No street, Chicago, 111., at 12 o'clock m. on Tuesday, January 12, 1905, for the election of directors and the transaction of such other business as may come before the meeting. The stock transfer books of the company will be closed at 5 p. M. on January 2, 1905, and remain closed until the end of said meeting of stockholdei's. John Johnson, Secretary. Form 25. Notice of Stockholders' Special Meeting. Office of the Company, No street, Chicago, III., September 1, 1905. Notice is hereby given that pursuant to the call of the president a special meeting of the stockholders of the Company will be held in the office of the company. No street, Chi- cago, 111., at 2 o'clock p. M. on Tuesday, September 12, 1905, for the purpose of considering and acting on a proposed resolution author- izing the issue of bonds by the company to the amount of $50,000 24G MODERN BUSINESS COltPOEATIONS. and the execution of a mortgage on the company's property secur- ing them, a copy of which resolution reads as follows: (Here recite the resolution.) Also for the transaction of any and all business pertaining to, or necessary in connection with the issue of such bonds and execu- tion of such mortgage. By order of the president. John Johnson, Secretary. Cincinnati, Ohio, September 5, 1905. John Johnson, Secretary of the Company: Dear Sir — As president of the Company I hereby call a special meeting of its stockholders, to be held on the 15th day of September, 1905, at 12 o'clock m., in the office of the company. No street, Cincinnati, Ohio, for the purpose of con- sidering and acting on a resolution authorizing the issue of $50,000 worth of company bonds, and the execution of a mortgage on the company property to secure them, a copy of which resolution reads as follows: (Here copy the resolution.) Also for the transaction of any and all business pertaining to the execution of the authority conferred by said resolution. You will please send the necessary notices to stockholders, calling such a meeting at said time and place. Robert F. George, President. Form 26. Stockholders' Meeting — Waiver of Notice. The undersigned, being all the stockholders of the Com- pany, owning respectively the number of shares of stock set oppo- site our respective names, and being now present at the company's office, do hereby consent to the holding of a meeting of the stock- holders of said company on this 5th day of September, 1905, at 3 p. M., in the office of the said company. No street. New York, for the purpose of considering and adopting a resolu- tion authorizing the change of the name of said company to the Company, and the transaction of any and all business inci- dent thereto. And we severally waive notice of such meeting, and consent to the consideration and transaction of such business. Witness our hands this 5th day of September, 1905. NAMES. NUMBER OF SHARES OWNED. John Jones 25 shares William Marks 75 shares Thomas Smith 100 shares FORMS. 347 Form. 27. Simple Proxy. I, the undersigned, do hereby appoint and constitute my true and lawful attorney in fact to represent me at any and all meetings of the stockholders of the company [held on or before December 31, 1905]* hereby granting him full power and au- thority to act for me at such meetings, and in my name and stead to vote the stock in said company belonging to me and standing in my name on the company's books, with like authority and effect as I might do if personally present at any such meeting. Witness my hand and seal this day of 1905. In presence of Signed (Seal.) Form 28. Proxy for a Particular Meeting'. I, the undersigned, do hereby appoint and constitute my true and lawful attorney in fact to represent me, and to act in my place and stead at the annual (or special) meeting of the stock- holders of the Company, to be held in the office of said com- pany on the day of , 1905, pursuant to a notice hereto- fore given by the secretary of said company, and at any adjourn- ments thereof, and in my name and on my behalf to vote any and all stock in said company belonging to me and standing in my name on its books, as fully and with like effect as I might do if person- ally present at such meeting. Witness my hand and seal this day of 1905. In presence of Signed (Seal.) Form 29. Proxy for Specific Action. I, the undersigned, do hereby appoint and constitute my true and lawful attorney in fact to attend on my behalf and to represent me at a special meeting of the stockholders of the Company, to be held in the office of said company on the day of 1905, pursuant to a notice heretofore given by the secre- tary of said company, and in my name, place and stead to cast at Eaid meeting any and all votes which I should be entitled to cast as an owner of stock in said company if personally present thereat, in favor of the adoption of a certain resolution for issuing $5,000,000 of corporation bonds and mortgaging the company property to se- * By omitting the words in brackets the proxy will become un- limited as to time, so as to continue in force until revoked. 248 MODERN BUSINESS CORPORATIONS. cure the same, which resolution said special meeting has been called to consider. And I hereby ratify and confirm any and all votes cast by my said proxy in favor of the adoption of said resolution. In witness whereof, I have hereunto set my hand and seal this day of , 1905. In presence of Signed (Seal.) Form 30. Oath of Inspectors of Election. The statute of New York prescribes a form of oath for inspectors at a corporation election which will answer in other states, though more specific than is necessary in some jurisdictions. It is as fol- lows: State of New York, County of New York, ss: We, the undersigned, duly appointed to act as inspectors of elec- tion at the annual meeting of stockholders of the Company to be held in the office of the company. No street, in the city of New York, on the day of , 19. ., being sever- ally sworn, depose and say, and each for himself deposes and says, that he will faithfully execute the duties of inspector of election at such meeting with strict impartiality and according to the best of his ability. John Smith, James Johnson. Subscribed and severally sv/orn to before me this day of 19 . . Martin Snow, (Notarial Seal.) Notary Public. Form 31. Inspectors' Certificate of Election. The undersigned inspectors of election, duly appointed and quali- fied, do hereby certify that at the regular annual meeting of stock- holders of the Company, held at the office of said company, No street, New York, on the day of , 19.., a quorum being present, we, after being first duly sworn by oath hereto annexed, did conduct the election for directors of said corporation, and that the vote taken thereat resulted in the election, by the plurality set opposite their respective names, of the follow- ing directors to serve for the ensuing year. names. votes received. John Johnson 125 George Williams 108 Charles Wilson 117 roiiMs. 249 Witness our hands this day of , 19 . . . William Spruce, John Jacobs. State of New York, County of New York, ss: Before me, a notary public, on this day of , 19. ., per- sonally appeared William Spruce and John Jacobs, to me well known to be persons described in and who executed the foregoing certificate, and severally acknowledged that they executed the same for the uses and purposes therein set forth. Martin Marks, (Notarial Seal.) Notary Public for County of New York. Form 32. Notice of Election as Director. Office of the Company, No street. Indianapolis, Ind., October 1, 1905. Mr. James M. Burke, Chicago, 111.: Dear Sir — I take pleasure in notifying you that the board of di- rectors of the Company, at a special meeting held on Septem- ber 30, 1905, elected you to membership in said board to fill the va- cancy caused by the death of Mr. Williams. Please signify your ac- ceptance of the office at your early convenience, and attend the next regular meeting of the board on October 6, 1905, at 3 p. m., in the office of the company. Respectfully, John Johnson, Secretary. Form 33. Notice of Regular Meeting of Directors. Office of the Company, No street. New York. Notice is hereby given that the regular monthly meeting of the board of directors of the Company will be held at the office of the company. No street. New York, at 2 p. m., August 4, 1905. Dated July 25, 1905. John Johnson, Secretary. Form 34. Notice of Special Meeting of Directors. Office of the Company, No street. St. Louis, Mo., August 28, 1905. Notice is hereby given that, pursuant to the call of the president, there will be a special meeting of the board of directors of the 250 MODERN BUSINESS CORPORATIONS. Company at 2 p. m., on September 7, 1905, in the office of the com- pany, No street, St. Louis, Mo., for the purpose of electing a secretary to succeed James Burton, recently deceased, and for the transaction of business pertaining to such election, the entering into a contract with the person so elected and fixing his salary. By order of the president. John Johnson, Secretary. rorm 35. Directors' Meeting — ^Waiver of Notice. The undersigned, being all of the directors of the Company, and being all present, do hereby consent to an immediate meeting of the board of directors of said company, at 2 p. m., on this 10th day of September, 1905, in the office of John Jones, No street, Cincinnati, Ohio, for the transaction of any and all business pertaining to the affairs of the company which may come before such meeting, and we hereby waive notice of such meeting. Witness our hands this 10th day of September, 1905. [Signed by all the directors.] Form 36. Notice of Dividend. Notice is hereby given that pursuant to a resolution of the boara of directors of the Company, adopted July 16, 1905, a semi- annual dividend of three per cent, for the six months ending June 30, 1905, will be paid on July 30, 1905, to the holders of common (or preferred) stock of record at the close of business on July 20, 1905. The stock transfer books will be closed July 20, 1905, at 5 p. m., and remain closed until July 30, 1905, at 10 a. m. Philadelphia, July 16, 1905. John Johnson, Secretary. Form 37. Procedure for Issuing Bonds. Whereas, The action therein provided for is necessary to preserve and advance the best interests of this corporation, and Whereas, This meeting has been regularly called after due notice for the purpose of considering and adopting or rejecting the follow- ing resolutions; be it Resolved, That a meeting of all the stockholders of the Maine and "Washington Railway Company be and the same is hereby called to be held at the main office and principal place of business FORMS. 351 of said company in room in building, No street, in the city of on the day of No- vember, 1905, at 11 o'clock a. m., for the purpose of considering and acting upon a proposition to issue mortgage bonds of said company to the amount of fifteen million dollars ($15,000,000), payable in gold coin of the United States, for the purpose of paying off and taking up the outstanding bonded indebtedness of said company to the amount of eight million dollars ($8,000,000), paying existing floating indebtedness of said company to the amount of two million dollars ($2,000,000) and providing a fund of five million dollars for use in making improvements, extensions and betterments of and upon the property of said railroad company, and thereby to in- crease its bonded indebtedness up to the aggregate amount of fifteen million dollars ($15,000,000) in gold coin of the United States, and to secure the payment of said bonds by mortgage upon the railroads, rights of way and certain properties belonging to said company as particularly described in a mortgage heretofore prepared for sub- mission to and consideration by said meeting of stockholders. Resolved, That the secretary of this company shall cause to be published in the , a newspaper of general circulation pub- lished in the city of [where the meeting is to be held] at least once each week for eight weeks, beginning on the day of , instant, a notice to the stockholders of said Maine and Washington Railway Company, stating the time, place and object of holding said meeting, which notice shall be in substantially the following form: Notice is hereby given that, pursuant to a resolution of the board of directors of the Maine and Washington Railway Company unani- mously adopted at a full meeting of the said board, duly called for that purpose and held at the principal office of the company on the day of , 19. ., a special meeting of all the stockholders of the said Maine and Washington Railway Company will be held at the principal office of said company in room in building at No street in the city of , state of on the day of November, 1905, at 11 o'clock A. M., for the purpose of considering and acting upon a propo- sition to issue mortgage bonds of said company to the amount of fifteen million dollars ($15,000,000), for the purpose of taking up outstanding bonds of said company, paying its floating debts, and providing a fund to pay for extensions and betterments of the rail- road properties of said company, thereby increasing the bonded in- debtedness of said company to the aggregate amount of fifteen mil- lion dollars ($15,000,000) and to secure such bonds to be so issued by a mortgage upon the railroads, rights of way and certain prop- 253 MODERN BUSINESS CORPORATIONS. erties belonging to said company as described in a mortgage to be submitted to said meeting for its action thereon. By order of the board of directors this day of , 19. . (Corporate Seal.) R. M. Jones, Secretary of the Maine & Washington Railroad Company. Resolved, That the secretary of this company shall cause a suffi- cient number of like notices to be prepared in the form of letters or circulars, and shall send by mail, properly stamped and addressed, at least thirty days before the date fixed for said meeting, one such notice to each stockholder whose name appears as such on the com- pany's books, such notice to be addressed to the stockholder at his place of residence, if shown by the books of the company or other- wise known, and if his residence be not known, addressed to him at the principal place of business of the company. Form 38. Indemnity Bond for Reissue of Lost Stock Certificate. The undersigned, George Burton and the Fidelity Surety Company, hereby acknowledge ourselves as held and firmly bound unto the Motive Power Company of New York in the sum of ten thousand dollars ($10,000), for the payment of which to the said corporation, its successors and assigns, we jointly and severally bind ourselves, our heirs, executors, administrators and successors. Signed and sealed by us this day of , 19. .. The con- dition of the above obligation is as follows: Whereas, The said George Burton is recorded on the transfer books of said Motive Power Company of New York as the owner of fifty (50) shares of the capital stock of the said company, and Whereas, His original certificate of stock No. 3, issued by said com- pany, evidencing his ownership of said fifty shares of stock has been lost, stolen or destroyed, as he has complained to said company, and Whereas, Upon application of the said George Burton and pursu- ant to a resolution of the board of directors of the said Motive Power Company of New York granting the same, a new certificate for the said fifty shares has been this day issued to said George Bur- ton and numbered 57; Now, Therefore, If the said George Burton, his heirs, executors and administrators shall now, and at all times hereafter, save, de- fend, keep harmless and indemnify the said Motive Power Company of New York, its legal representatives, successors and assigns from, against and on account of all demands, claims or causes of action arising out of, upon, or connected with said certificate No. 3, for said fifty shares of stock in said company, or any actual or pre- FORMS. 253 tended purchase or assignment thereof, and from all costs, expenses and damages that shall or may arise therefrom, and shall also sur- render and deliver up to said company for cancellation the said cer- tificate No. 3, whenever and so soon as it may be found, then this obligation shall be void. Otherwise in full force and effect. Geokge Buutox, The Fidelity Surety Company. By M. A. Allen, General Agent. Signed, sealed and delivered in presence of Arthur R. Morgan, Joseph Harper. Form 39. Resolution of Consolidation. Whereas, It is the sense of this board that the consolidation of the A. Company, the B. Company and the C. Company to form a single corporation, and the consolidation and amalgamation of their re- spective capital stocks, properties and franchises will be mutually advantageous, and Whereas, The holders of more than three-fourths in value of all the capital stock of each of said companies have consented in writ- ing to a consolidation of the said A. Company, B. Company and C. Company upon the terms following, to wit: First. That said consolidation shall take place at once, and the consolidated corporation shall continue in existence for fifty years. Second. That the consolidated corporation shall bear the name of the A. Company. Third. That the consolidated corporation shall take over and be- come the owner of all the lands, properties, franchises and assets of every description belonging to each of said constituent com- panies; shall assume, become liable for, pay and discharge, all valid debts, liabilities and obligations of every kind, character and de- scription, heretofore incurred or entered into by either and all of said constituent companies; shall hold said property and franchises subject to all the valid conditions, liens and claims to which the same were and are subject in the hands of the several constituent companies; and shall assume, undertake and perform all contracts, agreements and undertakings to which any and all of said constitu- ent companies are lawfully bound to the same extent and in like manner as such constituent company or companies are bound to keep and perform the same. Fourth. That the objects and purposes of the consolidated com- pany shall be made to embrace the objects and purposes of all the three constituent corporations. Fifth. That the consolidated company shall have a board of di- 254 MODERN BUSINESS CORPORATIONS. dectors equal in number to the combined boards of the three con- stituent companies, and its directors for the first year shall be all the directors of all of said companies. Sixth. That its principal place of business shall be that of the A. Company. Seventh. That the capital stock of said consolidated company shall consist of one hundred thousand (100,000) shares of one hun- dred dollars ($100) each, and shall be issued to shareholders in the constituent companies (upon surrender of their shares of stock therein) in the proportion that such shares held by them respectively shall bear to the combined capital stocks of all the said constituent companies. Be it resolved, that the propositions and conditions above recited are hereby accepted and adopted by the board of directors of the company. Note — There is no branch of law that is more intricate than the law of corporations. Forms, at best, can only be suggestive. They must be in harmony with the purposes of the incorporators and the rights granted by law. It would be possible to make a large volume of forms for procedure in the organization and management of pri- vate corporations without being able to furnish forms wholly appli- cable in any given instance. The forms given herein are merely il- lustrative and must be adapted through changes to the uses for which the corporation lawyer or ofl3cer intends them. PART X. MISCELLANEOUS: 255 MISCELLANEOUS. TRUSTS AXD VOTING TEUSTS. In the strict legal sense of the word there are not now such things in existence in America as trusts, that form of combina- tion having become illegal after the passing by congress of the federal anti-trust act, known as the Sherman law, which was approved in 1890. The trust form of combination was different from the present form of mammoth centralized corporations. "The several firms and corporations which sought to combine their interests did not merge them into one corporation, nor sell them to any one individual or set of individuals. On the contrary, the several properties, whether corporate or individual, remained in equity distinct, but they were all transferred in trust to a certain few persons as trustees to manage them in the interests of the several owners. The value of the respective properties was ascertained, and the trustees issued trustees' cer- tificates to the owners for their respective proportionate shares in the aggregate of the property turned over to the trustees. In some cases all the stock of the corporations was transferred to the trustees ; in others, only a majority of the shares ; but what- ever the extent of the interest, enough of it was turned over to the trustees to give them control of the several properties. There was one management, one policy and one great combina- tion, so far as production or marketing, price making, or profit- sharing was concerned. Still the beneficial title to all these properties remained in their several owners. The different sub- sidiary corporations were still distinct."* This form combined a maximum of control with a minimum of financial responsi- *The Trusts, by William Miller Collier. Mod. Bus. Corp.— 17 257 258 MODERN BUSINESS CORPORATIONS. bility. The consolidated corporations ("holding corporations") and the pools and other forms of unincorporated association of to-day have practically the same purposes and effect the same results, but they have a different standing in the law. In the case of holding corporations the original corporations manage their individual business affairs. But, like a private person who owns the majority of the stock of two competing corporations and elects directors who will bring about uniform management of the two plants, the holding corporation owns a majority of the stock of the constituent corporations and elects their di- rectors, thus keeping entire control. The holding corpora- tion usually issues its stock proportionately to those interested in the component corporations in exchange for a majority or all of the stock of those corporations. The results of this form of combination are, of course, uniform control, monopoly, and often the destruction of small competing corporations. Not- withstanding the derivation of the word "trust," its meaning has been extended to cover these other forms of combination. Mr. S. C. T. Dodd, solicitor for the Standard Oil Company, has defined "trust" in its broader sense thus : "The term 'trust' embraces every act, agreement, or combination of persons or capital believed to be done, made, or formed, with the intent, power or tendency to monopolize business, to restrain or inter- fere with competitive trade, or to fix, influence, or increase the prices of commodities."* The voting trust is a device, permitted by the laws of some states, the object being to maintain an agreed policy which can- not be interrupted by the sale of shares of individuals. Holders of a majority of shares enter into an agreement to transfer their shares to a trustee, who has the power to vote them, and thereby elect the directors and control the management and policy of the corporation.! The trustees issue to the sliareholders, in exchange for their shares, trvist certificates, which are usually made transferable the same as stock. The holders of these certifi- *Harvard Law Series, Nov. 1893. tSee Dill, New Jersey Corporations. TRUSTS AND VOTING TRUSTS. 259 cates reserve the right to draw dividends. The duties of the trus- tee are fixed by the trust agreement, which recites the policy to be pursued. This device is sometimes used as a protective meas- ure by small corporations to prevent their absorption or control by a holding corporation which might buy a majority of the stock and convert the smaller corporation to its own uses. Voting trusts have been upheld in decisions by courts in New York, New Jersey, Massachusetts, Alabama, Illinois and Cali- fornia, and they have been declared illegal in some other states. Cook on Corporations (pp. 1369-1371) gives the following con- clusion, after reviewing the decisions : " * * a deposit of cer- tificates of stock Avith trustees for a specified period of time, either with or without a transfer of the same to the trustees, is legal, and not in violation of the usual statute against restraints on the alienation of personal property, and is not opposed to public policy, as a restraint upon trade, and is not an implied fraud upon stockholders who are not allowed to participate, and it is not an illegal separation of the voting power from the ownership of the stock, provided, always, that no actual fraud is involved in the transaction. In other words, such a pooling of stock is not illegal in itself, but, like all contracts, may be illesral if actual fraud is involved." CORPORATION^ RECEIVERSHIPS. Receivers are appointed for corporations when necessary to protect the interests of creditors, stockhoklers, or the state. The appointment of a receiver is usually incidental to some other re- lief asked in a suit against the corporation or its officers. The most frequent cause for appointing a receiver is insolv- ency of the corporation. If it makes default in payment of the principal or interest of a mortgage debt, and suit is brought to foreclose the mortgage, a receiver may be appointed to preserve the property and conduct the business until property and busi- ness can be sold for the payment of debts. The same action will be taken where there has been long delay in the payment of a judgment. And even when suit is brought for a simple debt a receiver may be appointed if it appears that there are other debts exceeding the company's ability to pay, which make a receiver- ship necessary to prevent the seizure of the corporate property by piecemeal and the consequent destruction of a valuable busi- ness. When the charter of a corporation is forfeited and the cor- poration is dissolved by order of court in quo umrranto proceed- ings on behalf of the state, a receiver is appointed by the court for the three-fold purpose of restraining the corporation from using the forfeited franchise, providing for the satisfaction of corporation debts, and preserving the corporation property for tlie use of the stockholders, who, by the dissolution of the cor- poration, become tenants in common in its surplus effects. In like manner a receiver may be appointed when the charter of a corporation expires. A stockholder of a corporation may procure the appointment of a receiver by showing that its aifairs are being fraudulently mismanaged by the corporation officers, or that the business is 260 CORPORATION RECEIVERSHIPS. 261 being operated at a loss or is so heavily indebted that its prop- erty is liable to be seized and wasted by creditors or that the com- pany has voluntarily ceased business, and that the interests of stockholders arc not being properly cared for, or by showing any sufficient cause for dissolving the corporation. Public service corporations, such as railroad companies, street railroad companies, water companies and gas companies, are sometimes placed in the hands of receivers on the application of patrons to safeguard the interests of the public, which depends on the performance of their franchise duties for transportation, water, light, heat, etc. The appointment of a receiver is made by the court upon the application of a party having legal rights which, he shows the court, will suffer unless there is a receivership. The general rule is that the petitioner must make a prima facie showing that he has a cause of action for some substantial relief, as the mortgagee for the foreclosure of his mortgage, the general creditor to re- cover a judgment, the attorney-general for a forfeiture of the charter, the stockholder for a distribution of the company prop- erty, or a citizen for the performance of a public service. The existence of the cause of action, and also the existence of special facts which make a receivership necessary, must be established by affidavits or other evidence, depending on the local rules of practice. Notice to the corporation through its officers is usually neces- sary before the court will appoint a receiver. This notice must be given for such a reasonable time as will enable the company's officers to oppose the application if they wish to do so. What is a reasonable time will depend on the facts of each case. If it is shown by affidavits that the interests of the complaining party will suffer by delay, as where the officers are charged with selling the corporation property with the intention of converting it to their own use, or carrying it away beyond the jurisdiction of the court, a temporary receiver may be appointed immediately to take charge of the corporation property and business until no- tice can be given and the party afforded a hearing on the ques- tion whether or not the receivership shall be made. COEPORATE CREDIT. Bonds are long-time paper whose value is based on a corpo- ration's readiness and ability to pay interest and principal, as has been shown. Not all corporations issue bonds, nor do all corporations that have bond issues outstanding exhaust all their proper credit thereby. It has been stated as a principle that bonds should not be issued to an amount which will exceed the value of a corporation's property in times of adversity. The same principle extends to borrowing money on short time, or commercial paper, one reason being that it is poor financial practice to sell evidences of indebtedness at a heavy discount, which is necessary when the security is insufficient. And when there is a bond issue that does not cover an amount equal to a conservative estimate of tlie value of a corporation's property, commercial paper may often be issued advantageously to the limit fixed by the estimate. Short-time paper issued beyond this estimate is not completely secured, since, except when it is given in exchange for employes' services, which, are constituted by statute a prior lien, it comes after the bond claims in the distribution of the assets of a corporation. To pay current ex- penses and to supply operating funds till the indebtedness for merchandise credit extended to patrons is satisfied by pay- ment, business concerns must often borrow money from the banks. When interest rates are low, and for other reasons, it is often better to do this than to raise funds by selling bonds or preferred stock. But banks must be satisfied of the security of a corporation's paper before they will extend credit. A conservative bank will require trustworthy evidence of the resources of a corporation and knowledge of the character of the corporation's officers and directors. The ability of the corpo- ration to pay its notes and its reputation for promptly meeting 262 CORPORATE CREDIT. 263 all its obligations will determine its ability to secure credit in case it is not borrowing on salable collateral securities. The bank must know that it can force payment in case of default, and it endeavors to learn as nearly as may be, by investigating the reputation of the corporation for promptness or slowness in settling its previous indebtedness, that it will not have to incur the expense of forcing payment. No corporation can afford a bad reputation in either of these respects. It is in danger of being forced into dissolution if it has debts it cannot pay, and if it is able but unwilling to satisfy its creditors, it will have difficulty in securing loans in the future. A corporation may measure its financial stability in a degree by its ability to fill out satisfacto- rily enough to obtain a loan from a conservative bank the stand- ard form of report recommended by the American Bankers' As- sociation. This form of report is reprinted here in full. Many of the best banks in American cities use this form, and all cor- porations applying for loans must be able to fill it out to the bank's satisfaction. It is well for a corporation with a likely need of borrowing money to secure a "line of credit." Having a line of credit means that the corporation may secure any needed credit at its bank up to a certain amount, which amount is determined by the report submitted. In small cities and towns the bankers' personal knowledge of their patrons and their patrons' business usually makes unnecessary such elabo- rate statements. Among many banks another consideration determines the amount a company may borrow, i. e., the value of the com- pany's business to the bank. In New York a company generally is allowed to borrow five times the amount of its average de- posit, provided other conditions are right. In the west this rule is not adhered to, but the practice of western banks is tend- ing more in that direction. 264 MODERN BUSINESS CORrOUATTONS. Standard Form American 'Bankers' Association To the Capital T^ational 'Bank of Indianapolis . Name (Corporate style under charter) . Business Location Branches For the purpose of procuring credit from time to time from you for our negotiable paper or otherwise, we furnish you with the following statement, which fully and truly sets forth our financial condition on the day of 1 ; which statement you can consider as continuing to be full and accurate unless notice of change is given you. We agree to notify you promptly of any change that materially reduces our pecuniary responsibility. In consideration of the granting of such credit, we agree that if we at any time stop payment or become insolvent, or commit an Act of Bankruptcy, or if any of the representations made below prove to be untrue, or if we fail to notify you of any material change as before agreed, then and in either such case all our obligations held by you shall immediately become due and payable without demand or notice, and the same may be charged against the balance of any deposit account kept by us with you, we hereby giving a continuing lien upon such balance of deposit account from time to time existing to secure all our obligations held by you. ASSETS Cash in Bank Cash on Hand Bills Receivable, Good. .. AccountsReceivable,Good Bills or Accounts Receiv- able, Owing by Officers Merchandise, Finished (How Valued ) Merchandise, Unfinished (HowValued ) Raw Material, (How Valued ) Real Estate Machinery and Fixtures . . r o -a CO (T, w o ■^ ft u * o l- Total , LIABILITIES Bills Payable for Mer- chandise Bills Payable to Own Banks Bills Payable for Paper Sold Open Accounts Bonded Debt(WhenDue.) Interest on Bonded Debt. Mortgages or Liens on Real Estate Chattel Mortgages Deposits of Money with us Cf; a, o a a ■M O J J2 O 1 (B ^^ o Total Liabilities.... Capital Surplus, Including Undi- vided Profits Total f Accommodation Endorsements Contingent Liability.-] ( Endorsed Bills Receivable Outstanding Specify any of above assets or liabilities pledged as, or secured by, collateral, and state collateral. (Over.) CORPOEATB CREDIT. 265 CAPITAL Authorized Subscribed Paid in Held by Company as Treasury Stock How paid in : Cash $ Other Property Description of other property and how valued What portion of Real Estate, if any, has been acquired through bad debts? In whose name is title to Real Estate held Incorporated in what State and under what general Law or Special Act Date of Charter Commenced Business Are Stockholders liable beyond amount of stock subscribed If so, to what extent Amount of annual business Annual Expenses Annual Dividends AVhen was last Dividend declared Rate Insurance carried on Merchandise Real Estate Is Mortgage above stated a first lien on all the assets Regular times of taking inventory Give basis of statement, whether actual in- ventory, by whom taken and date, or if • estimate, by whom made and date. What amount, if any, of Accounts and Bills Rec, not charged off, is past due, extended or renewed Amount charged off for bad debts last year Amount recovered during same period Amount charged off account of plant preceding year State last date of taking trial balance and if same proved Regular times of balancing books Number of Bank Accounts and where kept OFFICERS NAME IN FULL President, Vice-President, Secretary, Treasurer, DIRECTORS NAME IN FULL Please sign Company's Name here. By. Date Signed 266 MODERN BUSINESS CORPORATIONS. The foregoing statement has value to the extent that it is accurately made. Such a report made by an unintelligent and careless or dishonest bookkeeper or clerk may be very misleading, James G. Cannon recommends that the custom be established of requiring that statements of financial condition of factories be accompanied by the joint certificates of a certified public ac- countant and of an expert engineer. The accountant will have concerned himself with the books and records of the corporation, and the engineer will have concerned himself with the physical properties — with the value of the plant, with the plant's adapta- bility to its use, with the value of raw materials, and with trade conditions, etc. The banker then has the sense of security due to the distinterested and impartial nature of the reports and valuations. MAEKETING NOTES IN THE OPEN MAEKET. The amount a company can borrow from a bank depends upon several considerations — the company's credit, the value of its business to the bank (earnings on its deposits less expense of caring for its business), the legal limits to the bank's loaning power, etc. It sometimes is desirable or necessary to sell com- mercial paper (promissory notes) through a note broker. In former times these notes were given only for merchandise bouglit, but now they are given without reference to the purchase of any special merchandise, in order to discount bills. "Of late years," says the Boston Commercial Bulletin, "the practice has arisen among merchants of drawing notes payable to their own order and selling them through brokers to banks or other lenders in the open market. The practice has been encouraged in two ways: first, because sellers of nearly all kinds of staple inerchan- dise offer large discounts for cash, and the buyer who sells his note for money and then pays the money for the merchandise gets the benefit of these discounts; and second, because a large number of note brokers are constantly going about among mer- chants and urging tliem to make such paper for sale. When a merchant secures his funds by discounting merchandise notes at one or more banks at which he keeps regular accounts, the banks thus have an accurate method of determining the amount of pa- per in the market bearing his signature or indorsement, and wliether it is safe to accept any more of it. But the commercial paper which is sold in the open market becomes so scattered that nobody but the maker knows how much of it is in existence at any one time. Cases have occurred in which young men began business with small capital, and being encouraged to increase their operations by making single-name notes and selling them through brokers, have thus established a credit utterly dispro- portionate to their means [usually a very bad thing for the young 267 268 MODERN BUSINESS CORPORATIONS. man as well as for the note buyers]. The mere fact that their notes have become known in financial circles often adds to their credit and enables them to give more notes." Notes should never be marketed for any other purpose than legitimate business. For future security, borrowings should be limited to the minimum value of the company's property as the value is estimated in hard times. It is not good financiering to sell notes at a heavy dis- count, though the rate of interest be below the usual percentage, and this will have to be done if the business statement submitted to prospective purchasers does not show a properly limited dis- posal of evidences of indebtedness. It is best, where possible, to arrange the interest so that the notes will bring their face value. Merchants often sell their paper at six or seven per cent, and dis- count their own bills at seven to nine per cent., making two or three per cent, by borrowing. If there is any legitimate reason for secrecy in borrowing it can best be maintained by selling notes through a broker. Albert S. Bolles describes the methods of the note broker as follows (in Practical Banking, published by Levey Bros., Indianapolis) : "Sometimes the broker has the notes in his possession for sale; in other cases he has simply a memorandum of them. In the latter case he has a printed form containing the name of the maker, amount, when and where pay- able, indorser and other particulars. A list is sent to a bank con- taining such a description of the notes, or the broker or his agent may visit the banks personally and exhibit such list or the paper itself. The printed list of notes that is sometimes sent to banks may contain a description of a hundred pieces of paper, and is marked, 'This is for bankers' use only.' Each piece is numbered. If a bank wishes to see any of the pieces therein described, on application they are sent to the bank by the broker. If a note ])roker is selling all the paper given by a certain merchant, the broker will be careful in offering it for sale. If the banker has $20,000 of the paper, and the broker knows he cannot increase the amount, he will be careful not to offer any more. He will also be careful not to put such paper on a printed list through fear the banker may conclude the merchant is issuing more pa- per than he ought to issue, if the merchant's name appears fre- MARKETING XOTES IN THE OPEN MARKET. 2G9 quently on printed lists. Xote brokers, or their agents, often visit banks several times daily.^' A first-class note broker will not fear to otfer holdings either on printed lists or personally, since he has assured himself, through the issuing company's sworn statements, that the company is not issuing more paper than it can care for. Purchasers of commercial paper will usually do better to buy through a reliable broker than direct, as many losses have been caused by companies who sent their paper direct to banks with the privilege of purchase or return. The Altman & Co. (Akron, Ohio) paper is an example in point. "Brokers do not always get possession of notes until they have paid for them. Several practices exist in this regard. One prac- tice is for the merchant to make notes and then deliver them to a note broker for sale. The latter may give a receipt or acknowledg- ment, or not. In such a case the merchant has entire confidence in the broker, otherwise he would not give him notes without ade- quate security. * * * Another way is for merchants to leave their paper with a note broker and get immediately from him a certain amount thereon. A merchant, for example, may leave $25,000 of paper and ask for $10,000, expecting the balance when the paper is sold. The note broker pays him this advance on ac- count and, after selling the paper and deducting his commission, ■ sends the balance. Another way is for the note broker to buy the paper, paying therefor at the time of the purchase. A note broker will go to a merchant and will say he will take so much of the merchant's paper at such a rate of interest. If the rate be accept- able, the merchant will sell paper and get the money. In these cases the broker expects to sell the paper so as to net the pur- chaser a lower rate of interest and thus make more than he would if charging the ordinary commission. Many brokers do wholly a business of this kind — buying paper and selling it at the best rate they can obtain for it. In negotiating paper note brokers sometimes indorse it, but bankers and others buy it because the maker is supposed to be good, and not because the broker in- dorses it." The note broker's profit on paper sold through him is usually one-eighth or one-fourth of one per cent. THE CORPORATE SEAL AND CORPORATE SIGNATURES. It is almost universally true that a corporation has a seal, and that affixing the seal is an important part of the execution of any formal instrument by the corporation. The distinction between sealed and unsealed instruments having been abolished, in whole or in part, in many jurisdictions, and the law permitting officers and agents of a corporation to bind it by parol contracts and unsealed writings for many purposes, the seal is not so highly esteemed as formerly. But it is still used on formal instruments, such as deeds and mortgages, bonds, stock certificates, etc. And when the secretary gives a formal official certificate, as in certi- fying to a transcript of the by-laws or minutes, the seal should be affixed with his signature. The seal is usually so mounted as to impress upon paper in raised characters the words and de- vice adopted by the corporation, and prescribed in its by-laws. It is not necessary to use wax or wafers in affixing the seal, though they are often used. The secretary is custodian of the seal by virtue of his office, subject to regulations and restric- tions contained in the by-laws. He is held responsible for any misuse of the seal by permitting it to be affixed to instruments the execution of which has not been authorized by the corpora- tion. Letters and informal documents relating to the corporation business are usually signed with the name of an officer of the cor- poration followed by his official title, thus, "John Johnson, President," or "George Williams, Secretary Fidelity Trust Co." But when formal contract? are executed the name of the corpo- ration itself should be subscribed and its seal affixed, followed by the signatures of the officers who acted for the corporation 370 CORPORATE SEAL AND SIGNATURES. 271 in executing the contract. The ordinary form of signature used in such cases is as follows: (Corporation Seai.) The Fidelity Security Company, By John Johnson, President. Attest, George Williams, Secretary. The corporation will be bound by the signatures of its officers, when they sign on its behalf within the scope of their authority, whether the name of the corporation is made a part of the signa- ture or not. But for the protection of the officers themselves a form of signature using the name of the company and stating that it is affixed by the subscribing officers should be adopted whenever the contract includes a promise to pay money or to do any other act which the officers are capable of performing as individuals. For it is held that where an officer signs his own name to a note or contract which purports to be made by the per- son signing it, followed by the word "president," or other words indicating his official position in a corporation, he binds himself as an individual, and cannot escape liability on the ground that the contract was entered into by and on behalf of his corporation. THE COEPORATIO^ LAWYER. The evolution in the methods of modern business organiza- tion has brought about a new and extensive department of specialized law practice. The corporation lawyer attends to the legal side of organizing a corporation, advising as to capitaliza- tion, the state in which to incorporate, and all the matters of primary consideration that have so much to do with the success of the corporation later. He is also the corporation counsel when the corporation is organized and operating. He is an important adjunct to the large commercial and financial houses of the country, and is frequently a partner or stockholder, and is usually active in directing the larger transactions of companies in which he is interested. To the large and intricate business organizations he is almost a sine qua non. Take, as an instance of a modern business organization, the United States Steel Cor- poration, with its eleven hundred millions of capital. "The net earnings of the United States Steel Corporation for 1902 were over $133,000,000 — more than the total sum raised by taxation in New York and Ohio together, in 1898, and twice the amount raised in Pennsylvania the same year. The gross income of the same corporation for 1903, $565,000,000, was more than the total ordinary receipts of the national government for any year prior to 1899. Its stock and bonds are more than the total capi- tal engaged in manufacture in any state of the Union, except New York and Pennsylvania." (Need of a National Incorpora- tion Law, Horace L. Wilgus.) Mr. John Brisben Walker points out that this company represents what not many years ago was several thousand separate businesses. The supplying of steel, coal, coke, oil, lime-stone, transportation, and so on, was divided among an endless n^^mbe^ of small firms. There was lack of sys- tem in making contracts, there were failures to deliver, there 272 THE CORPORATION LAWYER. 273 were misunderstandings, and unwise and incomplete methods of doing business, both from commercial and legal standpoints. There were many disputes, and differences of opinion were set- tled by the savage arguments of lawyers, who submitted their cases to the arbitrament of the courts. The bitter hatreds and the long and expensive legal fights marred the welfare and happiness of every commercial community. The several thou- sand businesses brought under the management of such a com- pany as the United States Steel has brought about harmonious transactions, because one board of directors superintends the business of the company, and in place of several thousand law- yers connected fortuitously with a number of small business in- terests, each lawyer finding profitalile employment where there was a dispute and a quarrel, there are now a few able counselors employed for tlie purpose of preventing legal complications and insuring harmony instead of discord. Such lawyers are fre- quently retained on a salary, being paid so much per year sim- ply to attend to the business that is referred to them. Not only do the trusts employ corporation lawyers in this way, but large business interests in nearly every metropolis have corporation counsel to whom they refer legal matters for advise or adjust- ment. No class of lawyers is more highly regarded, or finds more profitable and constructive employment than those who assist in the organization of corporations and have part in their conduct after organization. The best corporation lawyers are familiar with the technicalities and practices of finance, broker- age, banking and industrial commerce, as well as with, the laws bearing on the transactions of these occupations and of corpora- tions in general. They familiarize themselves with the details of their clients' business and keep in touch with the officers of the companies they represent and with all the important afEairs of the companies. They familiarize themselves with questions of science which enter into the evolution of business, and, in gen- eral, instead of being a clog upon the industry of others, they themselves are leaders in the direction of higher economic de- velopment. Being less technical in training than the officers and Mod. Bus. Corp. — 18 274 MODi:itN BUSINESS CORl'OUATIONS. directors of the companies, and being further removed from the personal elements that may enter into differences of opinion among officers and managers, the lawyers are better able to take a bird's-eye view of the affairs of the companies and are the more capable of advising efficiently. The function of the corporation lawyer is characteristically a constructive one ; it is a part of the upbuilding of great commercial enterprises. It is the branch to which such men as Charles E. Butler, William M. Evarts, and such other leading legal lights as Choate, Reed, Root, Tra- cey, Knox, Cromwell, Dill, Parsons and John R. Dos Passes have given much of their best attention. In selecting a corpora- tion counsel a large concern will do well to choose a lawyer who makes a specialty of corporation practice. CORPORATIOX BOND AXD STOCK INVESTMENTS. The investor, either in bonds or stocks, will find much in the foregoing pages to enlighten him in buying judiciously. In the part on accounting, Mr. Greene's analysis of a statement will be of assistance in estimating the value of a stock by applying a similar method to the statement of the concern whose stock the investor is investigating. Frequently concerns that are hard up will try to save themselves by issuing additional stock — common or preferred — and the statement of a "going concern" which is thus issuing stock should be carefully examined. The wording of a preferred stock or bond contract should be carefully read, as the name of a bond or stock is sometimes misleading. A satisfactory statement and a contract that secures the purchaser without question as to his rights are necessary to safety of principal and interest or dividends. One cannot buy a stock or bond having a contract on it and claim that he was misled as to the character of it. Whether he reads or does not read tlie contract he is estopped from complaining. It is usually well to read the articles of association and sometimes the by-laws of the corporation. In buying the securities of a public utility or franchise corporation the franchise should be examined with reference to its length in years, its scope, the terms or condi- tions of its renewal, and its limitations, if it has any. The Art of Investing says : "We must also bear in mind and carefully weigh the character of the community which grants the fran- chise, and not overlook the possible effect of a change in public sentiment. Wliile a city or other municipality cannot, as a rule, cancel a franchise which has been legally granted, and with the terms of which the company has complied, yet there are methods whereby the community can, if it so elect, take to itself, through taxation, what is generally termed the 'unearned incre- 275 376 MODEKX BUSINESS CORPORATIONS. ment' in the franchise. For instance, a city may, by legislation, limit the rate of fare which the company may be allowed to charge; it may insist upon a transfer system which will tend to reduce the income of a road ; it may adopt a franchise law re- quiring the company to pay into the city's treasury a certain proportion of its earnings in addition to the amount paid for ordinary taxes. This feature of the franchise question is coming to the front very rapidly nowadays, and it is quite necessary for the intelligent investor to be thoroughly informed along this line." The analysis of railroad reports, for investors in railway securities, is well treated in Greene's Corporation Finance and in Woodlock's Anatomy of a Railroad Eeport and Ton-ilile Cost. Railway accounts and statistics are discussed also in John- son's American Railway Transportation. The Art of Wall Street Investing (Moody) is helpful generally. Ideas as to the proper capitalization of corporations may be had in the discus- sions on that subject in this book, and there is useful information under the heading "Bonds." The income tables in the appendix will also be useful to the investor. In The Art of Investing, Mr. Moody shows the necessity for personal knowledge on the part of the investor. He says : "Two common and fatal mistakes should be avoided. One is relying solely upon the advice of another. No one competent to form an opinion for himself should put his pecuniary interests un- reservedly in the keeping of another. Such absolute confidence invites betrayal. By far the greater numher of losses to investors have been in securities purchased exclusively on the recommen- dation of outside parties. While it is well to get the opinion of a reputable broker, the purchaser should investigate for himself. [It is sometimes wise to get the opinions of several brokers and weigh their opinions against one another.] The other mistake is to uniformly give preference to listed securities. * * * Many persons seem to think that stocks and bonds must have a value if tliey are quoted at some stock exchange, forgetting how many fancies have been ballooned until they have burst at such places. On the contrary, such a position is likely to expose them to manipulation for purely speculative purposes. Stock exchange COEPORATIOX BOND AND STOCK IXVESTMENTS, 277 quotations are often unsafe guides to buyers. They represent not merely the value of the property but the pitch of speculation at the time. * * * They are pretty sure to be too high or too low. * * * Securities, in the long run, must stand upon their merits, and purchasers have merely to follow business principles as taught by the canons of common sense." Other valuable advice given by Mr. Moody is this: "Always question any proposition offering stocks or bonds for sale where such offers are made directly by the company itself, and not through a banking house or other reputable concern. If no bankers or brokers are handling the sale of securities, it is usually the case that there is something 'shady' about the scheme. There are exceptions, of course, but not many. If the securities are offered by bankers and brokers, the next step should be to ascertain the standing, reputation and financial strength of the bankers or brokers themselves. Wall street and other financial centers have their full share of irresponsible concerns of this class."' THE MAGNITUDE OF CORPORATIONS. The "trusts*' arc, of course, the largest corporations. The largest of the trusts is the United States Steel Corporation, in- corporated in New Jersey, February 25, 1901, by Charles C. Cluff, William J. Curtis and Charles MacVeagh, all of New Jersey, each subscribing for five shares of preferred stock and five shares of common stock, $100, par value, of the thirty shares, or $3,000, "the amount with which the company will commence business." But as fixed April 1, 1901, "the total au- thorized capital stock of the corporation is eleven hundred mil- lion dollars ($1,100,000,000), divided into eleven million shares of the par value of $100 each. Of such total authorized capital stock, 5,500,000 shares, amounting to $550,000,000, shall bo preferred stock, and 5,500,000 shares, amounting to $550,- 000,000, shall be common stock." "The duration of the cor- poration shall be perpetual." The large capitalization is al- most inconceivable. According to Professor Wilgus, of the University of Michigan (see Wilgus' The U. S. Steel Cor- poration, 1901), from whom this description is taken, the capitalization represents one-sixty-seventh of the total wealth of the United States in 1900, one-tenth of the value of the manufactures of the United States, one-fifteenth of the value of all the gold and silver mined in the world since the discovery of America, five-eighths of the value of all the farm animals in the United States in 1900, almost equal to the value of all the corn, wheat, rye, oats, barley, buckwheat, potatoes — the food crops in 1900 — more than three times the value of the cotton and wool — the clothing crops — of the United States in 1900. If all the stocks and bonds had been issued in shares of $90 each there would have been one for each family in the United States, or it would pay all the expenses of the public schools 278 THE AIAGNITI'DK OF rORPOIIA'I'IOXS. 279 of the Uni'ed States for the next seven years, or there woukl he about $18 for each man, woman and child in the United States, or about 90 cents for eacli man, woman and child on the face of the earth. The coi'poration exercises direct and positive control over 213 different manufacturing and transportation plants and companies, and forty-one different mines, located in eighteen different states. It also controls directly over 1,000 miles of railroad to ore, coke and manufacturing properties, and a lake fleet of 112 vessels, the finest on the lakes. By "community of interest" the corporation is allied with hundreds of millions more of capital. The moving persons in the consummation of the organization of the United States Steel Corporation were J. Pierpont Morgan, the financier-organizer, and Andrew Car- negie, the manufacturer-organizer. J. D. Rockefeller, also, prob- ably, had something to do with the organization. J, P. Morgan & Co. were the managers of the syndicate, formed by subscribers to the amount of $200,000,000, the subscri])crs comprising lead- ing financial interests in America and Europe. It has been esti- mated that the S3^ndicate made about $52,000,000 by the deal. If no allowance is made for good will, from one-half to four- sevenths of the stock is water; but if the capitalization is prop- erly based on the earning capacity of a "going concern," and not on the cost of reproducing the plants, it is not excessive, being a capitalization of the earnings at about seven and one-half per cent. There are seven of the greater industrial trusts the par value of whose outstanding stocks and bonds (The Truth About the Trusts, Moody, 1904) reaches a total of $2,662,752,- 100. Of this amount over one-half, or $1,370,000,000, is in- cluded in the capitalization of the United States Steel Corpora- tion and its subsidiary companies. These trusts, except the sugar trust, have been organized since 1898, and all are incor- porated under New Jersey laws. They represent an aggregate consolidation of over 1,500 distinct plants. While the par value capitalization of these trusts is $2,662,752,100, their market value is only about $2,278,460,000. There are 298 lesser industrial trusts, representing a consoli- 280 MODERX BUSINESS COKrOIIATIONS, dation of over 3,400 original plants, with a total par value capi- talization of $4,055,039,433. Then there are thirteen active trusts undergoing reorganization or readjustment which represent 334 plants and a total par value capitalization of $528,551,000. There are altogether 318 important trusts in this country, 236 incorporated since 1898, and 170 incorporated under New Jer- sey laws. The aggregate capitalization outstanding in the hands of the public is no less than $7,246,342,533, representing con- solidations of nearly 5,300 distinct plants, and covering almost every line of productive industry. The capitalization of some of the larger trusts and the number of plants controlled by them is as follows: Plants. Capitalization. Amalgamated Copper Company 11 $170,000,000 Consolidated Tobacco Co (about) 150 502,915,700 Standard Oil Co (about) 400 97,500,000 American Smelting and Refining Co 121 201,550,400 American Sugar Refining Co 55 145,000,000 International Merchant Marine Co 6 170,786,000 Of the greater franchise trusts, emlDracing public service consolidations, including telephone, telegraph, gas, electric light and electric railway companies, representing about 1,336 of the larger original corporations, the total capitalization is $3,735,- 456,071. Of this kind of trust the capitalization of eleven ex- ceed $100,000,000, twenty-three exceed $50,000,000, and ninety- four exceed $5,000,000. These stand well with the industrial trusts mentioned before, ten of which have a capitalization of $100,000,000 or over, thirty of $50,000,000, or over, and 129 of $10,000,000, or over. Then there are six great railroad groups, all exceeding $1,000,000,000 in capitalization, while the Morgan group exceeds $2,000,000,000. About 445 active industrial, franchise and transportation corporations are represented in Mr. Moody's book, representing 8,664 original companies and a total capitalization of $20,379,162,551. Besides these large corporations, there are very many more smaller ones, usually being single, unconsolidated businesses, representing billions of capitalization and of capital. DISTRIBUTION OF CORPORATE WEALTH. It has been estimated by Judge Grosscup that one-third oi: the wealth of the United States is represented by corporations. It is certain that the par value of all the stock and bonds admit- ted to trading in the New York Stock Exchange equals one- fifth of the nation's wealth. It would be important to know just how the immense wealth concentrated in stock companies is distributed, just how many persons share in the ownership. There are, however, no compre- hensive statistics bearing on this point. We have but two guides to an estimate. The comptroller of the currency reports that on June 30, 1904, there were 318,735 holders of the $770,594,- 535 capital stock of the national banks of the United States. The Interstate Commerce Commission reports that on or about the same date there were 327,851 holders of the capital stock of the railroads, which in 1903 amounted to $6,355,207,335. No record was given of the bondholders. The following table shows these figures to better advantage: Railroads. Banks. Capital $6,355,207,335 $770,594,535 Number of stockholders 327,851 318,735 Average per stockholder $19,380 $2,417 If it is a fact that one-third of the wealth of the country is held by stock companies, then the total stocks and bonds outstanding amount to about $35,000,000,000. Of this great sum, one-fifth, or $7,000,000,000, is shown in the above table. One-fifth of the corporate wealth is thus held by 646,586 stockholders. The same proportion extended to the other four-fiftlis would make 3,232,- 000 stock and bondholders in the United States. It is, however, probable that there are not so many. There were 67,522 stock- 281 283 MODERN" BUSINESS CORrORATIOXS. holders of the United States Steel Corporation at the time of the last report, but as a rule the stock of industrial companies does not enjoy so wide a distribution as the stock of railroad com- panies, just as the stock of railroad companies is more concen- trated than that of banks. But even assuming that there are 3,232,000 stock and bond holders in the United States, it does not follow that there are that number of individuals owning stocks and bonds. For there are many individuals owning securities in different railroads, banks and industrial companies, and there must therefore be many duplications in the foregoing estimate. We are now utterly in the dark, but if, as a mere guess, we reduce the 3,233,000 stock and bondholders to 2,500,000 individuals, the showing re- sults in 2,500,000 persons owning $35,000,000,000 of the na- tion's wealth, while the remaining 80,000,000 own $70,000,- 000,000. Right here, however, another qualification must be made. Large blocks of the securities are held by savings banks, insur- ance companies and trust companies which represent millions of small investors. For instance, thirty-one insurance companies, representing 15,522,G71 insurance policies, held on December 31, 1904, $1,216,865,128 of stocks and bonds. The savings banks of the state of N"ew York, representing 2,443,555 open accounts, hold $598,135,009 par value of stocks and bonds. There can be no doubt that notwithstanding the concentration resulting from the company's form of doing business, there is still a wide distribution of wealth in this country. This fact, however, does not alter the other fact that corporate wealth, while widely distributed, is narrowly controlled; that is to say, a constantly decreasing number of capitalists, through control of boards of directors, are in control of the immense wealth owned, directly or indirectly, by millions of individuals. — Edi- torial, Wall Street Journal, 1905. ORIGIN OF THE COMMERCIx^L MANIFESTATIONS OF CORPORATE EXISTENCE: Stock Exchanges, Stock Brokers, and Evidences of Title TO Corporate Shares and Debt Secured by Mortgage. It is not probable that stock certificates were known in ancient times; they have not been traced back of the middle of the seventeenth century. Shares of the East India Company and the Hudson Bay Company were traded in at tlie latter part of that century. Mr. Dos Passos says: "Tlie Roman law required three persons to organize a corporation, and as each body had at least that number of members, if not more, it would seem but nat- ural that a certificate, or some other substantial muniment of title, should have been issued by the corporation to its respective mem- bers, in which the proportion of interest of each in the capital or corporate property of the association appeared. But whether a. certificate was, in fact, issued, and if so, was regarded as prop- erty capable of sale or negotiation, and of vesting in the per- sonal representatives of the owner, on his decease, or whether the corporations were all in the nature of guilds, conferring upon the members mere personal rights — all of these questions seem now to be incapable of solution; and the Roman law, which sheds such floods of light upon commercial subjects, ap- parently leaves the above matters in total darkness."' The evolu- tion of the modern railway and industrial bond from the old bottomry bond of the middle ages, through the turnpike and canal trust, was so slow and gradual that it is hard to tell where one phase ends and another begins. Practically all the large transportation enterprises have been at least partly built from the proceeds of loans, so that the dates of the issue of loan certificates are in general coincident with the dates of turnpike, 283 284 MODERN BUSINESS CORPORATIONS. canal and railroad building. Jolm R. Dos Passos says in his book, Commercial Trusts : "I believe that the first railroad bonds, secured by mortgage, emanated from Philadelphia," but he gives no date. It is probable that these first modern mortgage l)onds were issued between 1845 and 1850, as the railroads of this country began to be developed about this time. On July 10, 1845, the Madison and Indianapolis Kailroad Company, extend- ing from Madison to Indianapolis, Ind., executed a mortgage securing $50,000 of bonds, and on July 11, 1846, executed an- other mortgage securing $100,000 of bonds. On May 1, 1845, the Little Miami Eailroad Company, extending from Spring- field to Cincinnati, Ohio, executed a mortgage securing $200,- 000 of bonds. But none of the bonds of these roads appears to have been issued. Of the more than three hundred different is- sues of bonds by the many companies wliicli have been generally absorbed into the Pennsylvania Lines west of Pittsburg, the fol- lowing appear to be the oldest : March 9, 1849 — Columbus & Xenia R. R. Co. (Columbus to Xenia, O. ) $300,000 January 1, 1850 — Terre Haute & Richmond R. R. Co. (In- dianapolis to Illinois State Line) 74,500 February 1, 1850— Cleveland & Pittsburgh R. R. Co. (Cleve- land to Wellsville, O.) 800,000 May 1, 1850— Rushville & Shelby ville R. R. Co. (Rushville to Shelbyville, Ind. ) 40,000 July 1, 1850— Ohio & Pennsylvania R. R. Co. (Pittsburgh to Massillon, O.) 1,000,000 September 21, 1851 — Ohio & Pennsylvania R. R. Co. (Mas- sillon to Crestline, O.) 750,000 January 1, 1851 — Eaton & Hamilton R. R. Co. (Hamilton to Indiana State Line 25,000 February 10, 1851— Dayton & Western R. R. Co. (Dayton to Indiana State Line) 300,000 March 1, 1851— Jeffersonville R. R. Co. ( Jeff ersonville, Ind., to Columbus, Ind.) 289,000 April 1, 1851 — Madison & Indianapolis R. R. Co. (Indianap- olis to Madison, Ind.) 600,000 November 1, 1851 — Columbus, Piqua & Indiana R. R. Co. (Columbus, O., to Union City, Ind.) 600,000 COMMERCIAL MANIFESTATIONS OF CORPORATE EXISTENCE 285 February 25, 1852— New Castle & Richmond R. R. Co. (Rich- mond to New Castle, Ind.) 300,000 April 1, 1852— Akron Branch Cleveland & Pittsburgh R. R. Co. (Hudson to Millersburg, O.) 500.000 April 10, 1852 — Indiana Central Ry. Co. (Indianapolis to Richmond, Ind. ) 600,000 April 15, 1852 — Cincinnati, Wilmington & Zanesville R. R. Co. ( Zanesville to Morrow, 0. ) 1,300,000 September 7, 1852 — Steubenville & Indiana R. R. Co. (Steu- benville to Newark, O. ) 1,500,000 November 1, 1852 — Richmond & Miami R. R. Co. (Rich- mond to Indiana State Line) 60,000 March 2, 1853— Little Miami R. R. Co. (Cincinnati to Springfield, O.) 1,500,000 The first issue of bonds, in the form now generally used, on the Baltimore and Ohio road was made April 29, 1853, the total issue being $700,000, and the bonds in denominations of $500 and $1,000 each. A letter from the secretary of the New York Central says: "It would be difficult to give the date when the first New York Central bonds were issued. In 1853 some seven or eight small companies owning roads between Albany and Buffalo consolidated, forming the old New York Central Company. In looking over the records of some of the old companies I find they had bonded indebtedness, but the records do not show whether the bonds were secured by mort- gage. I have hanging in my office a debt certificate of one of the companies referred to, the Mohawk and Hudson Eailroad Company, entitled 'Loan of May 11, 1837,' and after acknowledg- ing its indebtedness, it says: 'Being for money borrowed by said company in pursuance of act of legislature of the state of New York of 11th May, 1837, and by authority given at a meet- ing of the board of directors on the 17th of June, 1837, etc., etc.,' and closes with this sentence, 'And the holder of this certificate shall be entitled at any time within two years from the date hereof to convert the said principal sum into capital stock of said company at par on surrendering this certificate, with the dividend warrants, on the margin hereof.' " In England, instead of the distinction between stock and bonds, the English 286 MODERN BUSINESS CORPORATIONS. railroad capital is divided into ordinary, preference, guaran- teed, and debenture stocks, the last comprising only about 25 per cent, of the whole, and corresponding most nearly to our bonds in character. In America by far the larger part of rail- road capital is provided by bonds, an issue of $100,000,000 of l)onds now being not at all unusual ; manufacturing and other industries are also provided with much capital through bond issues. These bonds constitute the investment side of corporate finance, while the speculative side is in general represented by the stocks. Jacob's Law Dictionary says: *'The etymology of the term Broker has been variously given. By some it has been derived from the Saxon broc, misfortune, as denoting a broken trader ; the occupation being formerly confined, it is said, to unfortunate persons of that description (Tomlins), According to others it was formed from the French hroieur, a grinder or breaker into small pieces, a broker being one who heats or draws a bargain into particulars (Termes de la Ley, Cowell). The law Latin from ohrocator, however, seems to point distinctly to the Saxon abroecdn (to break) as the true root, which in the old word abbrochment, or ahroachment, had the sense of breaking up goods or selling at retail. A broker, therefore, would seem to have been originally a retailer, and hence we find the old word auctionarius used in both these senses (Barrill's Law Diet., tit. 'Broker'), Wharton gives, as the derivation of the word, the French broceur, and the Latin tritor, a person who breaks into small pieces (Whar. Law Diet., tit. 'Broker'). Webster gives as its derivation the old English brocour, ISTorman French broggour, French brocanteur. Under the word 'broke,' to deal in second-hand goods, to be a broker, Webster says it is probably derived from the word brock. Worcester derives it from the Anglo-Saxon brucan, to discharge an office; brocian, to oppress; and the French broyer, to grind. The word 'broker' seems first to occur in literature in Pier's Ploughman, 'Among burgeises have I be Dwellyng at London. And gart Backbiting be a brocour. To blame men's ware." It clearly means here a fault-finder, as in Provengal brae is refuse. The broker was originally one who in- COMMERCIAL MANIFESTATIONS OF COKPOItATK EXISTENCE 2S7 spected goods and rejected what was below the standard (Wedg- wood). Crabbs' Dig. of Stat., tit. 'Brokers/ says: 'There were a class of persons known to the Romans who were deemed public officers, and who united the functions of bankers, exchangers, brokers, commissioners and notaries all in one under the descrip- tion of proxe netae.' '' In 1885 the term "broker" occurs in an act of parliament. John E. Dos Passos says : "The next statute passed in the reign of James the First, more than 300 years later (160-i), regulates the calling of brokers with greater detail than the first act and clearly shows, by the use of the words 'merchandise and wares,' that down to this period the broker in money, stock and funds had no legal existence. * * * j^ -^^^g j^q^ until the latter part of the seventeenth century, when the East India Company came prominently before the public, that trading in stock be- came an established business in England ; and the term 'broker,' which had then a well-understood meaning, was promptly transferred to those persons who were employed to buy or sell stocks or shares, and who thenceforth became known as stock brokers."* In 1697, because of unjust practices and designs of brokers and stock jobbers, an act was passed which permitted only sworn appointees to act as brokers. A sixteenth century writer on law said: "It is an old proverb, and very true, that between what you will buy? and what you will sell? there is twenty in the hundred differing in the price, which is the cause that all the nations do more affect to sell their commodities with repu- tation by means of brokers than we do, for that which seems to be gotten thereby is more than double lost another way. Besides, that by that course many differences are prevented which arise between man and man in their bargains or verbal contracts, for the testimony of a sworn broker and his book together is sufficient to end the same." The advantage of a broker as intermediary was thus early recognized by merchants. Trading associations have existed for centuries. Angel and * Stock Brokers and Stock Exchanges, Dos Passos. 288 MODERN BUSINESS CORPORATIONS, Ames on Private Corporations says: "A Collegium ]\Icrcatorium [society of merchants] existed at Rome 493 B. C, but the modern bourse, from the Latin bursa, a purse, originated about the fif- teenth century. Bourges and Amsterdam contend for the honor of having erected the first bourse." The early exchanges, or bourses, dealt in merchandise. The stock exchange developed with the development of stock trading. About 1G75 dealers in stocks and merchandise dealt together in an exchange in Corn- hill, London, and in 1698 the dealers in stocks obtained ex- clusive quarters. The London stock exchange was formed in 1773. About forty years later a stock market began to develop in Wall street. Philadelphia had the first American stock exchange, organized in the early part of the nineteenth century. The New York stock exchange was formed in 1817. Many other large cities now have exchanges.* European bourses exist by special legislation and are subject to control of governments, while in England and America the stock exchanges are free from gov- erument regulation. *See The Work of Wall Street, Pratt, Chs. I and VII£. UNIXTELLIGEN^T COMPETITION. Incidental suggestions that should be of value to business corporations, large and small, are contained in an article, en- entitled Unintelligent Competition a Large Factor in Making Industrial Consolidatior^ a Necessity, which was contributed to the North American Review by Mr. James Logan, general man- ager of the L'^nited States Envelope Company. The following abstract is reprinted by kind permission : "The belief is quite general, in certain directions, that all com- binations and consolidations are organized to stamp out competi- tion and advance prices unduly. Without doubt, many consolidations have been organized with that end in view; but there are many others which have been organized to correct abuses which, on ac- count of ignorance and lack of intelligence, have become fastened upon many lines of industry and which threatened their destruc- tion. The fact is not lost sight of that the promoter has been one of the largest influences in the work of consolidation, but ignorant, unequal, even dishonest competition in business has brought many industries to such a condition that manufacturers were willing to listen to the plans of the promoter, or to any schemes which gave promise of even partial relief. "Usually one of the first things done by a consolidation is to re- vise its price lists. Then there goes up a great hue and cry about trusts, monopolies, squeezing the public, etc., by advancing prices, as though it were a crime to be unwilling to sell goods at a loss or without a profit. After a consolidation has been brought about, manu- facturers have the opportunity to compare notes and see how buyers have worked one manufacturer against another, until certain classes of goods have been sold for much less than they cost. These low prices have been largely made by ignorant manufacturers, who did not know what they were doing; manufacturers who conducted their business by the rule of thumb; men who had not the capacity even to appreciate system, to say nothing of originating it. When con- solidations are effected, that kind of ability usually goes to the rear, and the more intelligent men take control, men who know more Mod. Bus. Corp.— 19 289 290 MODERN BUSINESS COKPORATIOXS. nearly what it costs to manufacture goods. And yet the buyer and the public expect the manufacturer to continue in force the prices made by the ignoramus who has been superseded; and manufac- turers are expected to sell at a loss, or without a proiit, simply be- cause ignorant, cutthroat competition forced them to do so when they were powerless to prevent it. "The consolidation of industrials has made it possible to ascer- tain how business has been conducted by competing firms, and the methods, or lack of methods, of some have been a revelation. "It has been my pleasure to form the acquaintance of the man- agers of no less than six consolidations in different industries, and the experience of one is the experience of all. In some of the com- panies consolidated, they had never known the cost of manufactur- ing their goods; there had never been an intelligent attempt to learn the cost. The principle on which they appear to have acted was this: If one manufacturer quoted for an article a dollar, they knew they could make it for less than he could, and so quoted ninety cents. There was an absolute lack of system in everything, save in one particular — their system of price cutting without regard to cost was perfect. "Another fact has been discovered in every one of the six con- solidations referred to; the firms or corporations consolidated were successful, prior to the consolidation, just in proportion as they ad- hered to a fixed standard for their goods, giving to their trade ex- actly what they agreed to give. In other words, the firms which made the best goods had the most satisfactory trade, paid their help the highest wages, and made the most money; and those who made the poorest goods paid their help the lowest wages, and made the least money. "It may be asked, why do not firms which conduct their business on this basis fail? and the reply is, they do. This country is strewn with the wrecks of such firms, which fail time and again, compro- mise with their creditors and go on again, to continue their un- equal and ignorant competition. One of the hardest problems hon- est business men have to face is to try to do business in competition with others who own their goods through failure and compromise at anywhere from ten to fifty cents on the dollar. The ruinous feature of this kind of competition is that other manufacturers and merchants who do know their costs are in a degree forced to travel at the same pace. A manufacturer cannot hope to sell for a dollar what a competitor will sell for ninety cents, not even though the article in question costs, under the most favorable conditions, a dol- lar and ten cents to produce it. "Competition is industrial war, and, like war, it is being reduced UNINTELLIGENT COMPETITION. 291 to a science. Ignorant, unrestricted competition, carried to its logical conclusion, means death to some of the combatants and injury for all. Even the victor does not soon recover from the wounds re- ceived in the conflict. "We have had in this country great natural resources to develop. We have been for years throwing away more than would to-day be looked upon in the older countries, and in some lines of business in our own country, as a handsome margin of profit. In manufacturing industries, one invention has followed another in rapid succession, and the margin of profit has been such that it has not been deemed necessary to know exactly what the costs of production actually were. "It has become a commonplace to say that 'the wastes of one de- cade are the profits of the next' In many lines of industry that statement is well inside the truth; but we are approaching a time, if it has not already been reached in some industries, where it would seem as though the cost of production could not be materially reduced by the saving of wastes, or by the invention of improved machinery — the cost of running the machine in some industries be- ing such a small fraction of the total cost that, even though the machine were run for nothing, the cost would not be greatly reduced. "The father and mother of the Trade family are Supply and De- mand. The first-born (and he is the legitimate offspring of these parents) is Competition. This child being more often than other- wise untrained and ignorant, frequently works untold hardship on the Trade family. Although great harm is done by this untrained and ignorant member of the family, it does not follow that the child should be strangled and put out of the way, any more than an un- trained and ignorant child in a human family should be so dealt with; but he should be restrained, educated, trained and directed, in order that he may be made competent to do his full share of work. The progress of the world in everything has been by keen competition, in schools as well as in industries. Men need the stimu- lus of competition to do their best. To it we owe our development. It is the fuel which feeds the fire of ambition, and up to a certain point is a good thing (if the competition is intelligent rather than ignorant), but, like almost any other good thing, it can be abused. "There must always be competition. To stamp it out, were such a thing possible, would mean stagnation and death. It would mean that there was to be no further progress; and it is no compliment to the intelligence of the business men who have done so much for the progress of the world to suggest even that they are so short- sighted as to believe that that program could be carried out. "If there were no prizes to be obtained, men would cease to put 293 MODEKX BUSINESS CORPORATIOXS. forth the effort which makes for progress and growth. If there were no larger prizes ahead of a young man than simply a day la- borer's wages, the likelihood is that a good many would not put forth the effort necessary to become anything more than a day la- borer; but because there are prizes to be gained by competition, men are willing to become practically slaves to their business or profes- sion, and in gaining those prizes for themselves they make large contributions to the sum of human progress and happiness. We need competition if we would grow, but it ought to be honest and intelligent competition, and that is not what is being had under conditions which prevail in many lines of industry at the present time. "Some months after the consolidation of one of the leading in- dustries in this country, in conversation with the gentleman who was at the head of the cost department of one of the firms which had been consolidated (and it was the leader in that line of in- dustry), I learned that an order had recently been sent for estimate to his old company, and that they had figured on the order and lost it, prior to the consolidation. They had known there would be close competition, and they had gone over their cost figures very care- fully, putting the price on the lowest possible basis; but when the bids had been opened, other bidders' prices were so far below theirs that they were made to appear foolish. They had reviewed their figures, and could not understand how the party to whom the award had been made could sell the goods without loss at the price at which the contract had been awarded. When the companies were consolidated, the management had taken the order from the branch which had secured the contract, and had sent it for execution to this branch whose figures were so much higher, thereby acknowl- edging that their facilities for doing the work were better than those of the company which had been awarded the contract. A let- ter was written to the company which had secured the order ask- ing that they furnish the data on which they had based their figures. To this letter they made an evasive reply. Another letter was writ- ten, and again came back a letter equally evasive. The matter was then taken up through the manager's office, and this brought forth a letter which said they had.no detail of the figures of their estimate to submit; they had done work something like this, and felt sure they could do this at the price they had submitted, and that was all the information that could be obtained. The order was filled at a very considerable loss. "Now for the application. The company to which the order was sent for execution had not failed to pay a dividend but once in over thirty years. The company which secured the contract at the low UNINTELLIGENT COMPETITION. 2\i'6 price had not paid a dividend for seven years, and under existing conditions and management was not likely to pay one for seven years more. "A successful firm is not produced by chance, but by intelligence persistently applied; and this successful firm had made its dividends fully as much by orders which it had not accepted as by orders it had accepted. They knew where profit ended and where loss began; and when it became a question of paying a customer to do his busi- ness, they had let the other manufacturer have that privilege. "The competition hardest to meet is not usually that of successful firms, who know what they are doing, but of firms whose business creed appears to be summed up in the lines: " 'So on I go not knowing, 'Tis blessed not to know.' These are the firms which fail, and whose competition often causes others to fail; and the cause of their failure is largely the result of ignorance of the cost of production to the manufacturer or the cost of doing business to the merchant. For such ignorance, indeed, they are, in many cases, not entirely to blame. "Men rarely go into business directly from the ranks of industry. The offshoots from the established houses are usually heads of de- partments, office men, superintendents and foremen, and I suppose it is well inside the truth to say that nine out of every ten such employes, kept in ignorance of the true condition of business, be- lieve their employers to be making profits very greatly in excess of the amounts actually made. "The great majority of business men endeavor to keep the details of their business to themselves. They want to have as few as pos- sible of the men connected with their business know the cost of their goods and what profits they are making. The result is that many of these men have no knowledge of the costs of production to a manufacturer, and are wholly lacking in a knowledge of what it costs to do business as a merchant. "The point I would make is this: Is it wise to let such men think that the costs of doing business as a merchant are simply store rent and clerk hire, and the costs of manufacturing are sim- ply those larger items, like labor, rent, heat, power, etc., vi'hich stand out prominently, leaving out of their thought the services of the proprietor, and that multitude of other costs, many of the items small in themselves, but in the aggregate the mighty factor which decides whether the balance is to be on the right or wrong side of the profit and loss account; to let them go on guessing that the profits of the business are tvv'o or three times what they actually are; to keep them in ignorance of the true condition of the business. 294 MOi)i:i;.v busixijss corpouatioxs. which, if known to them, would in thousands of cases remove from them the temptation to start in business for themselves, and thus prevent a large part of the competition that kills? Such men are not entirely to blame that they have not the capacity to carry a 'Message to Garcia.' They have never had an opportunity to do work that would fit them for such service, and their employer often could not carry a 'Message to Garcia' either. Would it not be wiser to adopt the other course, to train and educate a man so that he may become more valuable to the firm? A man cannot grow and use good judgment in business matters, if a knowledge of the facts, which is the basis for judgment, is withheld. Men do not expect growth in anything else where the means of growth are cut off. Why should they in business? Then, if the man grows, pay him for this increased efficiency, of which the firm gets the benefit; and when that is done, if such a man does go into business on his own account, he will be an intelligent, rather than an ignorant, com- petitor. "Statistics are often quoted which show that only a very small percentage of the men who embark in business on their own ac- count succeed — those who have given the matter careful thought say from three per cent, to five per cent. Whether that be correct or not, I do not pretend to say; but this we do know, a large per- centage do not succeed. "There is reason for this enormous commercial death rate; and, in my opinion, one of the chief causes is bad accounting, and, as a consequence, ignorance of cost of production, as a manufacturer, and of doing business, as a merchant. "Many men accounted shrewd, having no knowledge of accounts themselves, utterly fail to appreciate the real purpose of bookkeep- ing and accounting, and act on the assumption that any boy or girl just out of school, who can be hired at the smallest salary and who is wholly lacking in business training, is competent to do their bookkeeping. That might be true if the only function of book- keeping were to see that sales were properly charged and accounts collected when due. That work is essential and must be done cor- rectly, if one would remain solvent; but there is another function which is equally important and which is too often neglected. Books of account should be so kept that, at the end of each period, there could be made up a statement of the business in each department in all its detail, giving the detailed costs connected with the busi- ness. It is not enough that these costs should go into a few general accounts. They must be subdivided so that comparisons can be made from year to year. If costs are increasing, the comparisons will reveal the fact; if there are leaks, they will be detected and UXiXTELLIGEXT COMPETITION. 295 Stopped; but that work requires brains and business training, and the salary investment made in employing a competent accountant will yield large returns, giving to the management facts, not guesses, in the matter of cost of production. "The demands of the new century will not admit of guesswork. The management of the future must have a definite knowledge of the cost of production — not in a vague and general way, but in a concrete and specific way. Success by the rule of thumb has gone forever, and in the years to come success will be won only through exact and definite knowledge. "The manufacturer's endeavor is to reduce the cost of production, but there are two mighty forces at work all the time to reduce the price just a little faster than the manufacturer can reduce the cost. These are the buyer and the traveling salesman, and they have helped to make consolidations a necessity. "The manufacturer who is ignorant of cost will usually be ignor- ant of other conditions connected with his business, and both he and his salesman will be at the mercy of the unscrupulous buyers. All buyers are not unscrupulous, and there is something to be said in behalf of the salesman. The writer has been a salesman for over five and twenty years. He has been in the employ of others, and he has for years sold his own goods, so that he is not giving hearsay evidence of conditions. "The traveling salesman's burden is not an easy one to bear. Prom Monday morning till Saturday night he hears one story from the buyer: 'He is not in it, not even a little bit;' 'his prices are not right;' 'we have quotations much more favorable;' 'so-and-so has agreed to deliver;' 'another one will give three months' dat- ing;' 'at even prices they prefer to give him an order,' and so on. Such statements may be true, and they may not. "After the consolidation of the company of which I have an inti- mate knowledge, the correspondence which had passed between the several companies and buyers from all over the country was open for inspection; so also was the correspondence sent in prior to the consolidation by traveling men, as to what the other manufacturers were reported to be quoting; and it was a most instructive exhibit. Prices which had never been quoted, and special terms which ex- isted only in the fertile brain of the buyer, had been met by com- peting manufacturers. Statements were made by buyers as to the volume of their business which were wilder than political estimates made on the stump, and which had been used as a lever to get quota- tions and terms to which the party making them was not entitled. "The salesman's position is dependent upon the business which he obtains. His orders must be obtained from the buyer, with whom 296 MODERN BUSINESS CORPOKATIONS. he must keep on good terms to obtain orders. In time, he often be- comes better acquainted, and on terms of even greater intimacy, with the buyer than with the house which he represents. The re- sult is that pretty much anything the buyer asks for he can have. The traveling man will say to his house that he cannot retain the trade unless the concessions asked are granted; and, as often hap- pens, the manufacturer, being known to the buyer only through the salesman, is completely at their mercy, and accepts the condi- tions laid down. "Add to this the fact that the manufacturer himself does not know the cost of his goods; does not know where profit ends and where loss begins; and, of course, the traveling salesman cannot know under those conditions. He more often than otherwise only knows the selling price which has been given him, and, no matter what that price may be, his assumption is that it involves a large profit. And when a salesman goes out on the Toad, even with a schedule of the lowest prices, usually his final instructions from the man who does not know his cost is to "get the orders, and, if it is necessary to cut those prices, to cut them," and with such instructions the prices are cut. "There are many large firms and corporations to-day conducting their business by the old rule of thumb, and that will one day pro- duce their downfall. Not having wrought out an intelligent system of accounting while the business was being developed, they now find themselves handicapped by a lack of system and a lack of knowledge of cost, which, with the small margin of profits which must rule for the future, is so essential if a manufacturer would succeed. Worse still, they are handicapped by a force of men in their several departments who, never having given much thought to such detail, utterly fail to appreciate its importance, many of them being now past the time of life when they are willing to learn new ways. "Almost every corporation, firm and educational institution has connected with it a certain proportion of men who act as brakes on the wheels of progress. Being too old to take up new methods, they set themselves squarely across the path of progress, and not only refuse to advance themselves, but make it next to impossible for others to make headway — their argument being that this is the way in which work has been done; these are the methods we have fol- lowed for years; they have been good enough in the past, they ought to be good enough now. "Many of these men have been connected with the business for a lifetime; and, in their thought, years of inefficient service ought to count as an equivalent for efficiency. They have been engaged in the UNIXTELLIGENT COMPETITION. 297 industry so long that they labor under the impression that they know all that there is to be known; and their very conceit closes up the avenue through which light could and would come to make them more efficient, if they would but let it. "Again, there is another class of men who are and have been for years agents, superintendents and foremen, who were never fitted, either by natural endowment or acquired ability, to fill such positions. They would never have been selected for their present posts, but in the early days of the business they drifted into their places, and they have drifted ever since. "Consolidations are, for the most part, made up of firms which have grown up from very small beginnings. Twenty-five years ago it was exceptional for factories to begin with any considerable work- ing force. They usually started small, and, from time to time, as the business increased, added to their plant. Now that has been all changed ; and a plant is created in three or six months which starts fully equipped and capable of turning out a product as large as that of firms that have been working to build up a trade for a score of years. "The agents, superintendents, foremen for such new plants, usu- ally being drawn from other going concerns, are selected because of their fitness. "The old method was very different. For example: In an office a young man was hired as bookkeeper, and he did pretty much all the office work that was not done by the proprietor. In time, as business grew, another clerk was hired. In the course of years the office staff had grown till there were a dozen clerks, and the man who chanced to be the first had been promoted at different times until he came to be the agent or superintendent. But he had stopped growing long ago, and simply held a position which he never filled. His being there, however, had prevented some one else from filling it who could, and who, had he been given the opportunity, would have ren- dered a larger service. Had the inefficient man been set aside and the progressive, efficient man put in his place, the business would, perhaps, have been saved from bankruptcy, and instead of the com- pany dying of dry rot, it might be giving employment to hundreds of other employes. This illustration applies with equal force to many of the departments connected with almost every manufactur- ing establishment. "The management of the consolidation is severely criticised be- cause it refuses to be handicapped by such men, and in making changes it often works hardship to the individual; but continuing an inefficient man in a position which he did not fill wrought hard- ship to the efficient man who was kept out of it, and also to hun- 298 MODEK-V BUSINESS CORl'ORATIOXS. dreds of employes who have been deprived of work which the other man's ability would have provided. So that the hardship is not all on one side. "Consolidations have closed factories and have thrown many faith- ful and efficient employes out of work. But every failure through such inefficiency as has been described has done the same thing; and, in many cases, had the consolidation not been brought about, failure would have been the next step. "Then again, owing to antiquated equipment, poor management or economic conditions, it is simply impossible to operate some fac- tories except at a loss; and even though the consolidation had not been consummated, many factories which have been closed by the consolidation would have been closed by the operation of economic law. The final result has simply been anticipated a little, and not a great while either. "A gentleman who was connected with a line of industry which had recently been brought under consolidation said to me that the consolidation had discharged three men, and that he was now work- ing four times as hard as he did formerly. I suggested that a man was somewhat better than a machine and more was expected of him; but that, if he had in his factory a machine from which he could get only 25 per cent, of efficiency he would throw it into the junk heap, and if he, as a man, drawing a good salary, had been only rendering 25 per cent, of his efficiency, he, too, was entitled to a place in the scrap heap. In this day and generation, 25 per cent, of efficiency means to step out and give some one else a chance, who can and will work at higher pressure and render larger service." adva:n"tage of foreign corporations in COURTS. Corporations sometimes desire to be incorporated in another state than that in which their business is located so as to be abl« to have suits transferred to the federal courts. A corporation of one state, doing- business in another state, has the right to bring suits in the latter state in the United States courts instead of the courts of the state, if the amount involved exceeds two thousand dollars. And if a suit involving that amount or more is brought against such a corporation in a state court it has the right to re- move the cause to the United States court for trial and judg- ment. This privilege is given by the constitution of the United States to non-resident citizens, and is enjoyed by corporations equally with individuals bringing or defending suits outside of the states of their residence. It is granted for the purpose of re- lieving non-residents of the effect of any local prejudice, and a non-resident cor])oration may waive the privilege and sue or de- fend in the state courts like a resident corporation if it chooses to do so. 299 APPENDIX 301 APPENDIX. Rules of New York Stock Exchange on Admission of Securities. Rules Pektaining to the Admission oe Listed Securities. COMMITTEE ON STOCK LIST. April 15, 1901. 1. The committee on stock list will meet on each Monday at 3:30 p. M. at the offices of the exchange. All applications to list securities must be addressed to the com- mittee and should be filed with the secretary of the exchange on or before the Wednesday prior to their consideration. requirements from applicants. 2. In all cases of application for an original listing of either stocks or bonds of railroad companies, it is required that there shall he filed a Statement of the locatio-n and description of the property, and when possible also a map thereof. Said statements should give title of the company, when the corporation teas organized, and by %chat authority, route of road, miles of road completed and in opera- tion, contemplated extensions, equipment, liabilities and assets, earn- ings, amount and description of mortgage lien or other indebtedness : also a statement of and liability for any leases, guarantees, rentals or car trusts, and terms of payment thereof- also the number of shares of capital stock authorized; the pCt value thereof, a list of officers and directors, the office of the company, transfer office and registrar; together with names of transfer officer and registrar. If it is a reorganization of another company, the particulars should be stated, as required by Paragraph 5. Seven copies of this statement in type, or typewritten, signed by an officer of the company, should be furnished to the committee, together tvith a like number of copies of trust deeds, mortgages, or other corporate agreements per- taining to the application. 3. Applications to place bonds on the List (Seven copies required) must give a description of the bonds, viz.: The amount of authorized issue, names of trustees, date of issue and of maturity, the par value of each kind of bond issued, series of numbers, rate of interest, when 303 30i MODERX BUSINESS COT^PORATIONS. and where payable, whether the bonds are subject to earlier redemp- tion by sinking fund or otherwise, whether bonds are issued in coupon or registered form, and whether they are transferable into other forms: and name of transfer agent and place of transfer, if said bonds have privilege of registration. The application should also state disposition of proceeds of the issue, and must be accompanied by a balance sheet and a statement of income account of a recent date. Seven copies of the mortgage, one being certified by the trus- tee to be a true and correct copy, together with evidence that it has been duly and properly recorded as a lien upon the property, and similar copies of other corporate documents must also be furnished. Bonds upon completed mileage only will be listed. 4. When application is made to place the securities of any rail- road corporation upon the list, the applicant must present a cer- tificate from a duly qualified civil engineer stating the actual phys- ical condition of the property as of a recent date. 5. When application is made to list securities of a corporation, which has been insolvent or has been reorganized, the exchange will require a full and complete financial statement of said corporation, or of its predecessor, for a period covering at least one year prior to reorganization; i. e., a detailed statement of earnings and re- ceipts from every source, a detailed account of all expeditures, and the amount of all outstanding indebtedness of every description in detail, and a balance sheet of the books of the reorganized company; also the amount and description of the various securities issued by such reorganized corporation, and the purposes and terms, in detail, under which they are to be or have been issued. If the property has been sold under foreclosure, copies of the order of court con- firming such sale, with a concise history of the proceedings, must be furnished, together with certificate from counsel that the pro- ceedings have been in conformity with all legal requirements, and that the title to the property is now fully vested in the new corpora- tion and is free from all liens and incumbrances, except as distinctly specified. 6. When bonds are issued, which by their terms are intended to replace one or more authorized prior issues, the exchange will re- quire evidence of the satisfaction of such prior liens, or a cancella- tion or cremation certificate of the bonds retired, as a condition precedent to listing. 7. Application for listing additional amounts of securities of rail- road companies, already represented upon the exchange, should state the amount and character of the additional issue, the authority therefor and the application of the proceeds; if for the acquisition of new property, the application should describe said property. APPENDIX. 305 8. In every case of listing of bonds, the committee must be fur- nished with a certificate from the county clerk of each county ia which the mortgaged property is located, that such mortgage has been recorded in each of such counties; should the laws of the state in which the property is located not require a record to be made in the several counties, a certificate of the secretary of said state of the proper record of the same, or a copy of the mortgage with such certificate of record indorsed thereon, and certified by the trustee to be a true copy, loill be required. 9. Original applications to list any securities of industrial or man- ufacturing companies must be accompanied by a copy of charter or act of incorporation, by-laws of the company, opinion of counsel that the company has been legally organized and that the securities have been legally issued, statement whether this is an original organiza- tion or a consolidation of several previously existing firms or cor- porations; if a consolidation, statement of financial and physical condition of constituent companies must be furnished, a full de- scription of the property, real, personal and leased; nature and character of product, and general statement of the business pro- posed to be transacted; opinion of counsel that real estate owned is free and clear, except as to stated liens; report of responsible ex- pert accountants, showing results of business each year for the period of at least two consecutive years if possible, and a balance sheet showing assets and liabilities of recent date; statement of special rights and privileges of directors, as conferred by charter or by-laws, and agreement that the company will not dispose of its stated interest in the constituent companies except on direct author- ization of stockholders, and that it will publish at least once in each year a properly detailed statement of its income and expenditures for such preceding period; and also a balance sheet, giving a de- tailed and accurate statement of the condition of the company at the close of its last fiscal year or of recent date. Applications to list additional amounts of such securities must give like additional in- formation, together with a statement of the application of the pro- ceeds of securities so issued. 10. Applications to list securities of all other companies must be accompanied with like information as to property, financial condi- tion, and results of business, as indicated above. 11. Every application for listing securities must he accompanied by a check, for the amount of fifty dollars for each $1,000,000, or portion thereof, of the par value of each class of security presented for listing. Said checks should be drawn to the order of the ''Treas- urer of the New York Stock Exchange,'" and tcill immediately be- come the property of the exchange. Mod. Bus. Corp.— 20 306 MODEKX BUSINESS CORrOKATIOXS. TRUSTEES OF MORTGAGES. 12. The committee recommends that a trust company or other corporation should be appointed trustee of each mortgage or trust deed: when a state law requires the appointment of a local individ- ual trustee, then a trust company or other corporation should be appointed as co-trustee. 13. The committee will not approve of an officer of an applicant corporation as a trustee of securities issued by it, nor will it regard such officer or director as being qualified to give opinion as counsel in regard to any legal question affecting the corporation. 14. In all cases where tioo or more liens have been placed upon the same real property of a corporation, seeking the listing of its securities upon the exchange, each lien must be represented by a trustee or trustees entirely separate and distinct from those to whom any other liens upon the same real property, either in part or in entirety, have been entrusted. 15. The trustee must present to the committee a certificate ac- knowledging the acceptance of the trust and giving the numbers and amount of bonds executed in accordance with the terms of the mortgage; in case the trust deeds shall require the deposit of col- lateral as security for the mortgage, the trustee shall certify to the deposit of such collateral, specifying it in detail. In the matter of additional issues of bonds the trustee must certify that such in- crease has been made in conformity with the terms of the trust deed, and that the lien of the mortgage has been duly recorded against any new property acquired, or that the required additional collateral has been duly deposited. 16. It is requested that a trustee shall furnish opinion of counsel approximately in the following form: "We have examined the mortgage, dated , , made by the Company to the Trust Company of as trustee, to secure an issue of bonds of said company to an amount not to exceed $ We are of opinion that the actions of the directors and stockholders in respect to this mort- gage were in conformity with the laws of the state of and are in accordance with the laws of all states in which the prop- erty so mortgaged is situated, and that the mortgage and bonds therein referred to are, in all respects, valid and binding obliga- tions of said company " ENGRAVED CERTIFICATES REQUIRED. 17. The face of every bond, coupon, or certificate of stock must be printed from steel plates, which have been engraved in the best appp:xdix, 307 manner, and which have such varieties of work as will afford the greatest security against counterfeiting. 18. For each document or instrument there must be at least two steel plates, viz.: A Face plate containing the vignettes and letter- ing of the descriptive or promissory portion of the document, which should be printed in black, or in black mixed with a color; also a Tint plate from which should be made a printing in an anti-photo- graphic color, so arranged as to underlie important portions of the face printing. 19. These two printings must be so made upon the paper that the combined effect of the whole, if photographed, would be a confused mass of lines and forms, and so give as effectual security as possible against counterfeiting by scientific or other processes. The imprint of each denomination of bonds must be of such distinctive appear- ance and color as to make them readily distinguishable from other denominations and issvies. It is required that for each class of stock issued there shall be a distinctively engraved plate for one hundred shares tclth said denomination engraved thereon in words and fig- ures; and for certificates issued for smaller amounts than one hun- dred shares, there shall be similar plates, distinctive in design or color, for each issue, and there shall be engraved thereon some de- vice whereby the exact denoTnination of the certificate may be dis- tinctly designated ; and they shall also have conspicuovisly engraved thereon the words, ''Certificate for less than one hundred shares.'' 20. It is required that a sample of each issue of stocks or bonds sought to be listed shall be referred to the committee- for acceptance as to form, character and workmanship prior to application for their listing; no form of stock certificate or bond will be accepted unless it has been carefully engraved by some bank-note engraving com- pany whose work the committee on stock list has been authorized by the governing committee to accept for admission to the list. REGISTRATION. 21. The constitution of the exchange provides that all active stocks must be registered at some institution satisfactory to the com- mittee; each application must be accompanied by a letter from the registrar stating the amount of stock registered at the time of ap- plication. 22. The exchange requires that a trust company, or other agency, shall not at one and the same time act as registrar and transfer agent of a corporation. The duties of such offices should be per- formed by different companies or agencies. 23. In any case of increase of capital stock, except for converti- ble bonds already listed, at least thirty days' notice of such intended 308 MODKUX BUSINESS CORPORATIONS. increase must be given in writing to the stock exchange, and appli- cation must be made through the committee on stock list to the governing committee to have such new stock admitted to the list; the registrar will not be authorized to register any new stock until notified by this committee that such stock has been duly listed. 24. All signatures upon securities must be written. Stamped signatures will not be accepted by the committee. CERTIFICATES OF STOCK. 25. The power of attorney indorsed upon a certificate of stock must contain a full bill of sale, must be irrevocable, and must con- tain a power of substitution. 26. After a stock has been placed on the list, any change in the form of certificates or place of registry or transfer must receive the approval of the committee on stock list. All alterations or amendments proposed to be made to bonds or certificates of stock, subsequent to the original issuance thereof, must be submitted to the committee for approval as to form and printing, as a condition precedent to listing. The committee will not favorably consider any impress which has been made by a hand stamp upon any security. 27. The governing committee may refuse to make new issues of stock a good delivery, or allow dealings therein, and it may suspend dealings in the capital stock, or in the bonds of any company, either for a time or permanently, as the case may seem to require. CERTIFICATES OF DEPOSIT IN TRUST. 28. Institutions, firms or corporations which are depositaries of securities under plans of reorganization, protective or associate ac- tion, are requested to accept on deposit only such securities as are good delivery in the exchange ; provided, however, that in any case where said depositaries find it necessary to accept securities which are not a good delivery, they shall issue therefor a distinctive cer- tificate which will indicate such fact. Agreements for deposit of securities for protective or associate action must be limited to a specified time for continuance, within which a plan of reorganiza- tion or adjustment will be presented to the certificate holders for acceptance, or in default thereof such holders will be granted oppor- tunity to withdraw the securities represented by their certificates, and their assent to said agreement thus terminated. Penalty for de- lay in depositing securities under any agreement should not be im- posed until all holders of such securities shall have had reasonable APPENDIX. 309 opportunity for so depositing, after the listing of the depository- certificates upon the exchange. 29. When bonds are deposited with institutions, firms or corpora- tions, which are depositaries under plans of reorganization, pro- tective or associate action, certificates therefor will be considered as representing the deposit of coupon bonds. When certificates are is- sued for deposit of registered bonds, said certifi,cates must bear on their face evidence of such fact. Certificates of deposit for securities, whether for reorganization, protective or associate action or for vot- ing trustees, must bear the countersignature of some institution as registrar, in same manner as certificates for stock. RECOilJIEXDATIOXS. 30. The exchange recommends to the various corporations whose securities are here dealt in, that they shall print, publish and dis- tribute to stockholders, at least fifteen days prior to annual meet- ings, a full report of their operations during the preceding fiscal year; together with complete and detailed statements of all income and expenditures, and a balance sheet showing their financial con- dition at the close of the given period. The exchange requests that stockholders of the several corporations take such action as may be necessary for the accomplishment of this recommendation. William H. Granbery, Chairman. William McClcre, Secretary. Rlt-es I*ertainixg to the Admission of Unlisted Securities. COMMITTEE ON UNLISTED SECURITIES. In re Applications for Quotation in Unlisted Department. State name of corporation, date of incorporation, the state in which it is incorporated, if personal liability attaches to ownership and if stock is full-paid. Authorized capital. Preferred stock — (Cumulative or non-cumulative %). State nature of preference of preferred over common stock in re- gard to voting, dividends and assets. Common stock. Amount of each outstanding. Par value of shares, preferred. Par value of shares, common. Transfer agent, New York. Transfer agent, elsewhere. 310 MODERN" BUSINESS CORPORATIOXS. Registrar, New York. Registrar, elsewhere. State if certificates issued elsewhere are transferable in New York without discharge. State how generally stock is distributed, about number of stock- holders and if any stock is in the hands of trustees for stockholders of acquired or constituent companies. Dividend rates and dates of payment. Balance sheet last issued, if of recent date. If incorporation is of a recent date, a statement of the net earn- ings of the acquired or constituent companies for a period of three years must be made. Bonded indebtedness: Give particulars — Date of maturity. Rate of interest. Sinking fund requirements. Amount authorized. Amount outstanding, and if interest has all been paid. Bonded indebtedness of acquired or constituent companies (with particulars as above). State if acquired or constituent companies are owned in fee; if not, give amounts of various acquired or constituent companies' stocks owned, also amount authorized. Give history of corporation (and if composed of old companies name them), location of plants, character of buildings, acreage and nature of business conducted at each plant. Board of directors, give address (city only). Classified, if in classes. List of officers. Furnish sample of each kind of stock certificates. Letter accepting transfer agency from transfer agent. Letter from registrar accepting office. Letter from counsel in re legality of incorporation. Certified copy of charter or articles of incorporation and by-laws. The committee will require that the articles of incorporation or the by-laws provide that the company shall not deal in its own shares or in the shares of constituent or acquired companies, and that an annual report to stockholders be issued. Every application for a quotation in the unlisted department for securities must be accompanied by a check for the amount of fifty dollars for each $1,000,000, or portion thereof, of the par value of each class of security. Checks should be drawn to the order of the "Treasurer of the New York Exchange," and will immediately be- come the property of the exchange. Furnish four copies of application. BIBLIOGRAPHY OF SOME USEFUL BOOKS OX COR- PORATION LAW, HISTORY, MANAGEMENT, ETC. AUTHORITIES AND TEXTS. Cook on Corporations. Morawetz on Corporations. Thompson on Corporations. Angell and Ames on Corporations. Kyd on Corporations. Taylor on Corporations. Elliott on Corporations. Clark on Corporations. Dill on New Jersey Corporations. CASES. Wilgus's Corporation Cases. American and English Corporation Cases. STATUTES. American Corporation Legal Manual. (Digest of Statutes and Decisions.) Frost, The Incorporation and Organization of Corporations. (Discussion of Statutory Provisions and Synopsis-Digest of Cor- poration Laws.) Overland, Classified Corporation Laws. POPULAR BOOKS ON ORGANIZATION AND MANAGEMENT. Conyngton, Corporate Organization (1 Vol.), and Corporate Man- agement (1 Vol.). (Excellent books for lawyers as well as corporation officers and stockholders. They contain the most extensive discussions of pru- dential matters of corporate concern.) Clephane on Business Corporations. Spelling on Corporate Management and By-Laws. Tompkins, Summary of the Law of Private Corporations. 311 312 MODERX BUSINESS CORPORATIONS. Historical. Early chapters of several texts, including Elliott. Davis, Corporations: Their Origin and Development. (Academic, up to modern times, but nothing modern.) Sohm's Institutes of Roman Law, and Savigny. (Accounts of Roman Corporations.) S. E. Baldwin, Modern Political Institutions. (General Incorporation in Roman and English Law.) Cranston and Keane, Early Chartered Companies. Economics. Ripley, ed.. Trusts, Pools and Corporations. Jenks, The Trust Problem. Montague, Trusts of To-day. Meade, Trust Finance.* Moody, The Truth About the Trusts. Ely, Monopolies. Collier, The Trusts. Symposium, The Trust: Its Book. General: Reference to Special Classes of Corporations or Cor- porate Business. Johnson, American Railway Transportation.* Hadley, Railroad Transportation. Cleveland, Funds and Their Uses.* Pratt, The Work of Wall Street.* McVey, Modern Industrialism.* Moody, The Art of Wall Street Investing. Greene, Corporation Finance. (An unusually excellent book.) Wilgus, The United States Steel Corporation. Tarbell, History of the Standard Oil Company. Montague, Rise and Progress of the Standard Oil Company. Dos Passes, Stockbrokers and Stock Exchanges. ( Standard law book on this subject.) See also the arguments before the Industrial Commission at Wash- ington, D. C. Specimens of Securities. Specimens of Investment Securities, compiled by W. G. Sumner, of Yale, published by the C. P. Judd Company, New Haven Conn. (This collection was compiled for class-room use, but is excellent * Appleton's Business Series, an excellent synopsis of modern busi- ness practices. ArPENDIX. 313 for attorneys. It contains specimens of sixty-four varieties in the form of securities, each general type being given in full, with es- sentials of variations being quoted afterward.) Corporation Accounting. Keister's Corporation Accounting. Goodwin's Manual. Hatfield, Modern Accounting.* Dicksee's Auditing. (American edition of English work on professional auditing.) Statistics on Corporations. Manual of Statistics. Moody's Manual of Railroads and Corporation Securities. (Both contain up-to-date financial, statistical, and general informa- tion concerning individual American corporations of all classes.) *In Appleton's Business Series. 314 MODERX ■BUSINESS CORPORATIOXS. CHARTS SHOWING POSSIBLE DISTRIBUTION OP OFFICERS, ETC., AND THEIR RESPONSIBILITY ShAREHOLOERS 5ECRETAQY AS5I5TAHT SECRETARY I HEGISJQAR. JRANmRAQT. VICE PRESIDENT 0IQECTOR5 GENERAL COUNSEL X LOCAL COUNSEL PRESIDENT 6ENERAL MANA6EQ 5UPTS DCPARTMCNTi VICE PRESIDENT COMPTROLLER AUDITOR, TREASURER ASSISTANT TREASURER ACCOUNTAtlTS BOOK-KtEPERJ StlAREHOLDERS MAI1A6INQ DIRECTOR I GENERAL MANAGER T ^UPTJ PCPARmEftTJ DIRECTORS — r PRESIDENT VICE PRESIDENT COUNSEL AUDITOR SECRETARY] I ASSISTANT [SECRETARY VTRANSEER. il AQENT TREASURER I ASSISTANT TREASURER^ BOOnmPERS EXECUTIVE COMMITTEE I smreholderj OlRECTORS\-\[S!^'^rilTTEE SECIIE-Mliy GEH-LMQR COUNSEL I AJSLSTAflT SECRETARY I TRANSEER AGENTS PRESlDEfIT VICE PRESlDEfIT TREASURER AUDITOR ASSISTANT TREASURER APPENDIX. 315 HOW A GREAT ENGINEERING COMPANY DISTRIBUTES THE MANAGEMENT OF ITS BUSINESS Chart of responsibilities of officers and department beads. Tlie small circles out- side the largest circle indicate the location of the company's contracts. — From World's Work. 316 MODERN BUSINESS CORPORATIONS. > EH < -^ W ^ i-i o fe o o < o o o I— I o PQ EH 2S 8 o o d 8 O o O 8 d o q id 8 eo o o CO 0 00 "ife fi§- "^ '"' '^ ■^ '"' Mfc, a o ;=!J feO g 8 8 8 8 8 8 8 8 o o 8 s |- o 8 S g 8 d d d o d d § (f^ in in CD q^ o m' ^ ^ M in (» ^ o o o Q 8 o o O 8 O 0 g o o o o q q q q q o o d d d d d g in d 0 m o in o N o g S- m '"' C-l '^ in oq -* ^ €» ^ o o o o o o o o O 8 0 i o o o o q o q o q q d o in d ir* id o d d d d in la c^i o C<1 o »; ca '"' c^i Cvl 0 •»• 0 o o o o o o o o ,3 o o 0 «» 8 o o ira o ITS in q o q o 0 'O d lO ^ d Csl ^ o jf^ o d c s .9 M CO lO <£> CO in c^ ci S S Si ^ €6^ © Q o Q o o Q o o o o o 0 0 O o c d q d o d d o d q d q d o o q d q d o CO lO in CO '* c C c c 0 'a ? ^ JS " Cc in in c: o 0 CM IM C<1 CJ ^ 5. C8 ^ a p a 0: 0 4JI a c c u s tf c a T n ■5 1 "o a o t- ct 1 _c e ;i: V c (C ^ a n t: E - tf "c •^ c T a a o o 0 IS 1 a ■5 > •^ ta ^S c o '^ (D d tn Sa o © ^>, .9=ci _g a a c8 to rt *- P. aeo 5S 2 o 2 ^o O S m Sd 82 o 0 X eo — '^ © -^ a ca*' B m _ O O © -— ''^ APPENDIX. 317 ^ o -a o, 2"! 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INCOME- YIELDING CAPACITY OF STOCKS . 1* ^ Dividend Rate Per Annum. If^ M 1 2f 3i' 4^ 1 5f' 6/« 7^ Qi 95s 1054 1 125^ 10 10.00 2U.U0 30.00 40.00 50.00 6U.00 70.00 80.00 90. CO 100.00 120.00 12 1^ 8.00 16.00 24.00 32.00 40.00 48.00 56.00 64.00 72.00 80.00 96.00 15 6.67 13.33 20.00 26.67 33.33 40.00 46.67 53.33 60.00 66.67 80.00 nVi 5.71 11.43 17.14 22.86 28.57 34.28 40.00 45.71 51.43 57.14 68.. 57 20 5.00 10.00 15.00 20.00 2.5.00 30.00 35,00 40.00 45.00 50.00 60.00 22'/ 4.44 8.89 13.33 17.78 22 22 2(5.67 31,11 35.56 40.00 44.44 53.33 25 4.00 8.00 12.00 16.00 20.00 24.00 28.00 32.00 36.00 40.00 48.00 271/2 3.64 7.27 10.91 14.55 18.18 21.82 25.45 29.09 32.73 36.36 43.64 30 3.33 6.67 10.00 13.33 16.67 20.00 23.33 26.67 30.00 33.33 40.00 32 V4 3.08 6.15 9.23 12.31 15.39 18.46 21.54 24.62 27.69 30.77 36.92 35 2.86 5.71 8.57 11.43 14.29 17.14 20.00 22.86 2.5,71 28.57 34.29 37 J^ 2.67 5.33 8.00 10.67 13.33 16.00 18.67 21.33 24.00 26.67 32.00 40 2.50 5.00 7.50 10.00 12.50 15.00 17.50 20.00 22.50 25.00 30.00 42^ 2.35 4.70 7.06 9.41 11.76 14.12 16.47 18.82 21.18 23.53 28.23 45 2.22 4.44 6.67 8.89 11.11 13.33 15.56 17.78 20.00 22.22 26.67 47^2 2,11 4.21 6.32 8.42 10.53 12.63 14.74 16.84 18.95 21.05 25.26 50 2.00 4.00 6.00 8.00 10.00 12.00 14.00 16.00 18.00 20.00 24.00 521/2 1.90 3.81 5.71 7.62 9.52 11.43 13.33 15.24 17.14 19.05 22.86 55 1.82 3.63 5.45 7.27 9.09 10.91 12.72 14.55 16.36 18.18 21.82 57'^ 1.74 3.48 5.22 6.96 8.70 10.43 12.17 13.91 15.65 17.39 20.87 60 1.67 3.33 5.00 6.67 8.33 10.00 11.67 13.33 15.00 16.67 20.00 62^ 1.60 3.20 4.80 6.40 8.00 9.60 11.20 12.80 14.40 16 00 19.20 65 1.54 3.08 4.62 6.15 7.69 9.23 10.77 12.31 13.85 15.38 18.46 67/2 1.48 2.96 4.44 5.93 7.41 8.89 10.37 11.85 13.33 14.81 17.78 70 1.43 2.86 4.29 5.71 7.14 8.. 57 10.00 11.43 12.86 14.29 17.14 72y, 1.38 2.76 4.14 5,52 6.90 8.27 9,65 11.03 12.41 13.79 16. 55 75 1.33 2.67 4.00 5.33 6.67 8.00 9.33 10.67 12.00 13.33 16.00 77^ 1.29 2.58 3.87 5.16 6,45 7.74 9.03 10.32 11.61 12.90 15.48 80 1.25 2.50 3.75 5.00 6,25 7.50 8.75 10.00 11.25 12.50 15.00 82^ 1.21 2.42 3.64 4.85 6.06 7.27 8.48 9.70 10.91 12.12 14.54 85 1.18 2.35 3.53 4.71 5.88 7.06 8,24 9.41 10.59 11.76 14.12 87 J^ 1.14 2.29 3.43 4.57 5.71 6.86 8,00 9.14 10.29 11.43 13.71 90 1.11 2.22 3.33 4.44 5.56 6.67 7.78 8.89 10.00 11.11 13.33 92^2 1.08 2.16 3.24 4.32 5.41 6.49 7.. 57 8.65 9.73 10.81 12.97 95 1.05 2.11 3.16 4.21 5.26 6.32 7.37 8.42 9.47 10.53 12.63 97 y. 1.03 2.05 3.08 4,10 5.13 6.15 7.18 8.21 9.23 10.26 12,31 100 1.00 2.00 3.00 4.00 5.00 6.00 7.00 8.00 9.00 10.00 12.00 105 .95 1.90 2.86 3.81 4.76 5.71 6.67 7.62 8.57 9.52 11.43 110 .91 1.82 2.73 3.64 4.55 5.45 6,36 7.27 8.18 9.09 10.91 115 .87 1.74 2.61 3.48 4.35 5.22 6,09 6.96 7.83 8,70 10.43 120 .83 1.67 2.50 3,33 4,17 5.00 5,83 6,67 7.50 8.33 10.00 125 .80 1.60 2.40 3.20 4.00 4.80 5.60 6.40 7.20 8.00 9.60 130 .77 1.54 2.31 3.08 3.85 4.62 5.38 6.15 6.92 7.69 9.23 135 .74 1.48 2.22 2.96 3.70 4.44 5.19 5.93 6.67 7.41 8.89 140 .71 1.43 2.14 2.86 3.57 4.29 5.00 5.71 6.43 7.14 8.57 145 .69 1.38 2.07 2.76 3.45 4,14 4.83 5.52 6.21 6.90 8.28 150 .67 1.33 2.00 2.67 3.33 4.00 4.67 5.33 6.00 6.67 8.00 155 .65 1.29 1.94 2.58 3.23 3.87 4.52 5.16 5.81 6.45 7.74 160 .63 1.25 1.87 2.50 3.12 3.75 4.37 5.00 5.62 6.25 7. .50 165 .61 1.21 1.82 2.42 3.03 3,64 4.24 4.85 5.45 6.06 7.27 170 .59 1.18 1.76 2.35 2.94 3,53 4.12 4.71 5.29 5.88 7.06 175 .57 1.14 1.71 2.29 2.86 3.43 i.OO 4.57 5.14 5.71 6.85 180 .56 1.11 1.67 2.22 2.78 3.33 3.89 4.44 5.00 5.56 6.67 185 .54 1.08 1.62 2 16 2.70 3.24 3.78 4.32 4.86 5.41 6.49 190 .53 1.05 1.58 2.11 2.68 3.16 3.68 4.21 4.74 5.26 6.32 195 .51 1.03 1.54 2.05 2.56 3.08 3.59 4,10 4.62 5,13 6.15 200 .50 1.00 1.50 2.00 2.50 3.00 3,50 4.00 4,60 5,00 6.00 KEY— A six per cent, stock ■which sells at 85 yields 7.06 per cent. Look down the 6 per cent, column till opposite 85. 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Note. — The formula used by Mr. Montgomery Rollins, of Boston, to give the market value of a bond paying interest semi-annually is as follows, i representing one-half of the interest at bond rate: ^-\ r [ (1 + r)° Another formula, prepared by Mr. William R. Blair, of Oshkosh, Wisconsin, is this: Let n equal the number of interest payments the bond promises, r the real or market rate of interest, and d the difference between a single interest payment of the bond and the interest on its face value at market rate. This difference, recurring periodically, be- comes an annuity of which the present worth is d [ (1 -f r) - 1] (1 + r) "r The numerical value of this quantity may be found by the use of logarithms, and is the premium of the bond when the bond rate ex- ceeds the market rate, or the discount when the bond rate is less than the market rate. "Bond Values," published by Montgomery Rollins & Co., Boston, contains extensive tables showing the net return from bonds, stocks and other investments, at various ma- turities, interest or dividend returns, and prices. INDEX. [References are to pages.'\ A ABANDONMENT, dissolution by abandoning corporate purpose, 186. ACCOUNTANT, bookkeeping, duties connected with, 145-152. explanation of difficult questions presented, 150-168. licensed by state, 146. statement interpreted by, 157-167. AGENCY, promoter does not represent corporation, 20. promoter's authority from incorporators, 20. AGENT, appointment and removal by directors, 96. de facto powers of acting agent, 98. doing business without establishing agency, 28-81. proxy at stockholders' meeting, 138. resident agent required when, 27. AMENDMENTS, acceptance by unanimous vote of stockholders, 79. charter and articles, 79-81. meeting for consideration of, 81. AMERICAN BANKERS' ASSOCIATION, standard form of corporate statement, 264. ANNUAL MEETING, stockholders' meetings, 136-139. ARIZONA, advantages and disadvantages of corporation laws, 23. .329 330 INDEX. [References are to pages.} ARTICLES OF ASSOCIATION, amendment, 79-81. by-laws, effect upon articles, 83. consolidation involves filing of, 188. definition and purpose, 75, 76. directors named by, 96. dividend payments controlled by, 65. filing begins existence of corporation, 82. Indiana form, 205. irregularities defeating incorporation, 82. of United States Steel Corporation, copy, 207. purpose of corporation, statement, 76, 199. reorganization to change, 188. under New Jersey act for "associations not for pecuniary > profit," form. 204. under New York law, form, 203. ASSESSMENTS. definition and effects, 70, 71. reorganization to meet necessity for, 189. ASSIGNMENT, entering in books of company, 172-176. ASSIGNMENT AND TRANSFER, form on certificate, 233. ATTORNEY, See Counsel. proxy at stockholders' meetings, 138. AUDITING, explanation of questions presented, 150-1G8. AUDITOR. bookkeeping, duties connected with, 144, 152. duties to stockholders, 147, 148. powers and duties, 105. B BALLOT, election of directors, 137, 138. BANK. See Financial Banking; Commercial Banking. capital increased by borrowing from, 34. commercial distinguished from financial banking, 50. INDEX. 331 [References are to pages.} BANK — Continued. congress charters national banks, 3. law governing corporations, 2. statement by corporation to obtain loan, 166. underwriting corporation securities, 46. BANKERS. fiscal agents in placing stocks and bonds, 45. BENEVOLENT ASSOCIATIONS. classification of corporations, 2. BETTERMENTS, bookkeeping charges for, 154. BIBLIOGRAPHY, books of corporate concern, 311. BILLS AND NOTES, indorsement by treasurer, 103. president executes when, 100. BONDHOLDERS, voting at stockholders' meetings, 137. BONDS, assignment and indorsement, 125. assumed bonds defined, 127. blanket mortgage bonds defined, 126. capital obtained by issue of, 39-44. car trust bonds defined, 127. classification and nature, 125-130. collateral trust bonds defined, 126. contract determines value, 128. conversion of stock into bonds, 117. convertible bonds defined, 130. coupon bonds defined, 129. debenture bonds defined, 127. definition and description, 39 44. directors may issue, 95. divisional bonds defined, 126. effect of issue on value of stock, 41. element in capital of company, 33-39. equipment bonds defined, 126. first mortgage gold, form, 233. gold bonds defined, 129. holders allowed to vote when, 26. 333 INDEX. [References are to pages.'] BONDS— Conti7iued. holders are creditors of corporation, 40, 43. income bonds defined, 127. income gold, form, 237. indemnity, for reissue of lost stock certificate, form, 252. interest coupons matured before issue of bonds, 64. interest distinguished from dividends on stock, 42. interest-yielding capacity of, 321, 328. joint bonds defined, 128. legal tender bonds defined, 129. listing in stock exchange, 59. mortgage bonds, 126. mortgage, origin of, 283. participating bond defined, 128. placing by promoters and agents, 45, 49. price with reference to time of issue, 62-65. prior lien bonds defined, 128. procedure for issuing, form, 250. purchased by stockholders, 41. redeemable bonds defined, 130. refunding bonds defined, 128. registered bonds defined, 129. security for payment of, 125. sinking fund for redemption, 43. sinking fund, form, 235. stock distinguished from, 40, 41. underlying bonds defined, 128. value determined by stock exchange, 61, 62. BONUS, promoter cannot receive, 18. shares issued without full consideration, 111, 112. BOOKKEEPING, accountant distinguished from clerk, 143. accountant, rank and qualification, 145-152. auditor's rank and qualifications, 144-152. bookkeeper's qualifications and duties, 144. books of corporation, 167-182. depreciation and renewals, 152, 153. improvements, costs charged how, 154. questions presented in auditing, 150-168. railroad improvements, how charged, 153-156. statement interpreted by accountant, 157-1G7. INDEX. 333 [References are to pages.} BOOKS, See Bookkeeping. corporation calendar, 179-181. dividend book, 176. foreign corporation, law concerning, 182. instalment and instalment scrip books, 178, 179, keeping in home state, 28. list of books required, 167, 168. minute book, 168-171. secretary keeps, 102. statutes requiring certain kinds, 181, 182. stock certificate book, 172-174. stockholders' ledger, 171, 172. stockholders may examine, 133. subscription book, 176-178. transfer book, 174-176. treasurer's duty to keep, 103. BROKERS, fiscal agents in placing stocks and bonds, 45. note, sale of commercial paper by, 267. BUILDING ASSOCIATIONS, law governing corporations, 2. BUSINESS, changing to corporation, 65-67. what constitutes doing business by foreign corporation, 28-31. BUSINESS CORPORATION, capital stock necessary, 110. classification of, 2. BY-LAWS, amendment, 85, 86. definition and effect, 82-86. directors adopt when, 84. directors' meeting should be provided for, 98. forfeiture of stock pursuant to, 86. individual liability resulting from violation, 86. manager's powers and duties declared by, 104. penalties for violation, 86. powers and duties of committees, 105. powers of oflScers and directors declared. 77. presumption that members assented to, 84. rules of order declared by, 87. 334 INDEX. [References are to pages.l BY-LAWS— Con tinned. simple form, 213. special meetings of directors provided for, 99. special stockholders' meeting provided for, 139. treasurer's powers and duties declared by, 103. United States Steel Corporation, copy, 217. CALLS, definition, li. CALENDAR. character and contents, 179-181. CANCELLATION, certificates pasted in book, 173. CAPITAL, distinguished from stock, 109. profits and gains are part of, until distributed, 110. CAPITALIZATION, bonds as an element of, 39-44. definition, 31, 32. determining amount of, 32-39. earning value as element of, 36. fees and taxes reduced by low capitalization, 44. loans as an aid to, 33. over-capitalization and under-capitalization defined, 37. value of property not equaled by, 44. CAPITAL STOCK, See Stock. CERTIFICATE OF ELECTION, inspectors', form, 248. CERTIFICATES OF STOCK, See Stock Cebtificates. common form, 229. common form, containing notice and terms of preferred issue, 230. founders' shares, form, 232. preferred issue, 230. standard oil form, 232. INDEX. 335 [References are to pages.] CHANGE OF NAME. manner of effecting, 80, 81. CHARTER, See Formation. advantages and disadvantages of different corporation laws, 23-27. advantages of incorporation, 5. amendment, 79-81. congress has power to issue, 3. consolidation by taking out new charter, 187. corporation created by, 1. definition and purpose. 75, 76. dissolution on expiration or revocation of, 185. forfeiture by non-user, 82. general rules provided by, 77. incorporation in more than one state, 3. renewal effected how, 190. repeal by states, 79. special acts of incorporation, 4. where to incorporate, 22. CHARTS, organization, 314, 315. CHECKS, indorsement by treasurer, 103. president executes when, 101. CITIZEN, corporation is, 1. CLERK, distinguished from accountant, 143. COLLATERAL, stock used as security, 6. COMITY. foreign corporation recognized when, 28-31. COMMERCIAL BANKING, function of, 34, 50. COMMERCIAL CORPORATIONS. See Business Corporations. 336 INDEX. [References are to pages.'] COMMERCIAL EVIDENCES OF CORPORATE EXISTENCE, origin of, 283. COMMERCIAL PAPER, sale of through brokers, 267. COMMITTEES, powers and duties, 105, 106. COMMISSIONS, placing stocks and bonds, 45. promoter cannot make secret profit, 18. sale of stocks and bonds through bankers, 48 COMMON STOCK, bonds of corporation compared with, 40, 41. certificate and stub, form, 229, 230. COMPANY, corporation defined, 1. COMPETITION, capitalization below value to prevent, 44. unintelligent, 289. CONGRESS, charters, may grant, 3. CONNECTICUT, advantages and disadvantages of corporation laws, 23. CONSOLIDATED CORPORATIONS, listing of securities in stock exchange, 60. organization of trusts, 50, 59. CONSOLIDATION, law concerning, 187-189. resolution of, form, 253, CONTRACTS, consolidated corporation liable on, 187. dissolution of corporation does not release, 187. president executes when, 101. promoter's, form, 193. promoter may bind corporation when, 21. re-organization of corporation, liability upon, 189. secretary's power to make, 102. ultra vires, effect of, 78. INDEX. [References are to pages.} CONVERTIBLE STOCK, definition, 117. CONVEYANCE, inherent power of corporation, 77. CONVICTION, removal of director guilty of felony, 94. CORPORATE WEALTH, distribution of, 281. CORPORATION, See Charters. advantages of incorporation, 5. beginning of existence, 82. bookkeeping, auditing, and accounting, 143-182. chartered by more than one state, 3. classification of, 2. definition, advantages, and legal status, 1-9. distinguished from joint stock company, 4. formation and organization, 13-71. irregularities defeating incorporation, 82. magnitude of, 278. theories of duty of state, 7. where to incorporate, 22. CORPORATION CALENDAR, character and contents, 179, 181. COUNSEL, powers and duties of, 104, 105. COUPONS, definition with relation to bonds, 129. COURTS, advantages of foreign corporations in, 299. CREDITORS, duty of state to protect corporation creditors, 8. CREDIT, capital increased by use of, 33-34. corporate, 262. statement by corporation to obtain, 166. CUMULATIVE VOTING, stockholders' meetings, 138. Mod. Bus. Corp. — 22 338 INDEX. [References are to pages.} D DEBENTURE, bonds of corporation, 127. DEBT, bonds of corporation constitute, 40-44. consolidated corporation liable for, 187. directors may incur, 94. re-organization, liability of corporation created by, 189. stockholder's liability for, 134. DEEDS, president executes when, 101. DE FACTO OFFICER, permitting action by unauthorized person, effect, 98. DEFERRED STOCK, definition, 117. DEFINITIONS, bonds of corporation defined and described, 39-44. by-laws defined and described, 82-86. capitalization defined, 31, 32. common stock defined, 113. convertible stock defined, 117. corporation defined, 1. deferred stock defined, 117. founder's shares defined, 117. guaranteed stock defined, 116. outstanding stock defined, 118. over-issued stock defined, 119. preferred stock defined, 113, 116. promoter defined, 15. securities defined, 50. special stock defined, 117. treasury stock defined, 119. underwriting of stocks and bonds, 46. unissued stock defined, 118. DELAWARE, advantages and disadvantages of corporation laws, 24. DEPRECIATION, charged for in corporate bookkeeping, 152. INDEX. 339 [References are to pages.l DIRECTORS, See Officees. agents appointed by, 96. agent for corporation, 92. articles of association naming, 96. auditing boolis of officers, 105. auditor's duty to influence action, 147, 148. business of corporation transacted by, 94. by-laws adopted by, 84. by-laws violated may result in personal liability, 86. classification as to term, 92. consolidation, agreement for, 188. cumulative voting for election of, 26. de facto powers of acting director, 98. discretion as to books kept, 168, 181. election by ballot, 137, 138. election by the stockholders, 96. incorporation of established business, 66. liability for acts of officers, 95. liability for torts of corporation, 95. liability for ultra vires acts, 95. meetings, duties of secretary, 102. meetings, time, place and manner of conducting, 98, 99. minority representation, 138. notice of election, form, 249. notice of meeting, 98. number and selection of, 91-98. officers, election and removal of, 96. order of business at meetings, 99. powers of, 92-98. president presides at meetings of, 100. promoter forming corporation, duty, 17. qualifications of, 91, 92. ratification of acts on behalf of corporation, 95. removal from office, 93. re-organization, procedure, 190. resident director of corporation, 27. statutes as to holding meetings, 23-27. stockholders, must be, 92. DIRECTORS' REGULAR MEETING, amendment of charter or articles, 81. calendar recording date of, 179-181. certificate of officers, 169. 340 INDEX. [References are to pages.'] DIRECTORS' REGULAR MEETING — Continued. minute book should record, 168, 169. minutes corrected and approved, 170. notice of, form, 249. objections entered in minutes, 170. waiver of notice, form, 250. DIRECTORS' SPECIAL MEETING, notice of, form, 249. DISCRETION, dividends on preferred stock refused when, 115. DISSOLUTION, corporation may dissolve by action of stockholders, 77. directors may not order, 95. law concerning, 185-187. preferred stockholder's rights, 114. reorganization as new corporation, 80. stockholders may consent to, 186. stockholder's share assets, 133. DISTRICT OF COLUMBIA, advantages and disadvantages of corporation laws, 24. DIVIDENDS, calendar recording date for payment, 179-181. credits to account of, 152. cumulative dividends paid when, 115. discretion as to payment on preferred stock, 115. distinguished from interest, 42. distributive share of surplus earnings, 63. notice of, form, 250. payment as affecting price of stock, 41. payment upon issue of stock, 63. preferred stockholder's rights, 113, 114. price of stock with reference to payment of, 62-65. sentence granting pro rata dividends to preferred stock, form, 232. DIVIDEND BOOK, character and contents, 176. DOMESTIC CORPORATION, non-residence of, 27-28. DRAFTS, president executes when, 101. INDEX. 341 {References are to pages.} E EARNINGS, capitalization fixed on basis of, 34-35. dividends payable to stockholders, 63. ELECTION, stockholders' meetings, 137, 138. EMPLOYES, stockholder's liability to, 134. essentials of instrument, forms, 199 et seq. ESTOPPEL, assignment in blank, effect of, 124, 125. preferred shares reciting conditions estopped the holder, 116. ultra vires defense excluded when, 78. EXPENSES, depreciation and renewals distinguished from, 153. railroads, bookkeeping charges for, 153-156. EXPERTS, bookkeeping and accounting, 144-152. F FEDERAL COURTS, corporations of district of Columbia cannot sue in, 24. FEES, consolidation, filing articles of, 188. foreign corporation required to pay, 30-31. FELONY, removal of director upon conviction, 93, 94, FIDUCIARY, promoter's relation to corporation, 17. FINANCE, auditing and accounting, 150-168. FINANCIAL BANKING, explanation of purpose and methods, 50, 59. FINANCIAL CORPORATION, law governing in foreign state, 2. 342 INDEX. [References are to pages.'l FOREIGN CORPORATIONS, advantages in courts, 299. books required by law, 182. consolidation of domestic corporation with, 187. control by state where corporation was created, 27. doing business, what constitutes, 28-31. law governing, 2. pre-requisites to doing business, 28-31. relation to state, 28-31. FORFEITURE, by-laws, effect on right of, 86. charter forfeited by non-user, 82. dissolution by forfeiting charter, 185. subscription to stock forfeited when, 69, 70. ultra vires act as cause for, 78. FORMATION, See Charter. advantages and disadvantages of different jurisdictions, 23-27. beginning of existence of corporation, 82. charter necessary, 75. control over domestic corporation with principal office in an- other state, 27. filing articles of association, effect, 75, 76. fortuitous association of individuals, 14. manner of effecting corporate formation, 14-22. partnership or individual business changed to corpora- tion, 65-67. placing stocks and bonds, 45-49. promoters forming corporations, 15-22. promoter's liability upon failure to organize, 19. purposes for which a corporation is formed, 76. valuation of property exchanged for stock, 68, 69. where to incorporate, 22. who may incorporate, 14. FORMS, articles of voluntary associations — merchant, etc., Indiana, 205. under New Jersey "act to incorporate associations not for pecuniary profit," 204. under the New York business corporations law, 203. by-laws — simple form, 213. of United States Steel Corporation, 217. certificate form used by Standard Oil Company, 223. charter of United States Steel Corporation, 207. common stock certificate and stub, common form of, 229. INDEX. 343 [References are to pages.} FORMS— Continued. containing notice and terms of preferred stock issued, 230. directors' election, 249. regular meeting, 249. special meeting, 249. directors' meeting — waiver of notice, 250. first mortgage gold bond, 233. founders' share — stock certificate, 232. Income gold bond, 237. indemnity bond for reissue of lost stock certificate, 252. inspectors' certificate of election, 248. notice of dividend, 250. oath of inspectors of election, 248. procedure for issuing bonds, 250. promoters' contract, 193. proxy for particular meeting, 247. special action, 247. purposes of incorporation, 199. receivers' certificate of indebtedness, 243. resolution of consolidation, 253. sentence granting additional pro rata dividend to preferred stock, 232. simple proxy, 247. sinking fund bond, 235. stock certificate, form of assignment and transfer on back of, 233. stockholders' annual meeting, 245. special meeting, 245. stockholders' meeting — waiver of notice, 246. stock subscription given to promoters, 195. subscription blank after organization, 196. by owners on executing agreement with promoters, 194. underwriting agreement, 196. voting trust agreement, 243. FORMULA, for determining bond values, 328. FOUNDER'S SHARES, definition, 117. form of certificate, 232. FRANCHISE, See Public Utility Corporations element of corporation capital, 36. definition, 116. 344 IITDEX. [References are to pages.} FRANCHISE TAX, statutes for organizing corporations, 23-27. FRAUD, aiding and abetting fraud of promotor, 22. auditor's duty in discovering, 147-149. directors personally liable when, 95. promoter selling to corporation, 18. registrar's liability for attesting or countersigning certifi- cates, 122. G GENERAL MANAGER, See Manageb. GOOD WILL, advantages of incorporation, 7. incorporation of established business, 67. GUARANTEED STOCK, definition, 113. dividends payable from surplus earnings, 63. voting at stockholders' meetings, 137. H HOLDING COMPANIES, 258. HOLIDAYS, calendar recording date of, 179-181. IMPROVEMENTS, bookkeeping charges for, 154. INCOME, questions presented in auditing, 151-168. INCORPORATION, See Formation. advantages of, 5. fees, tables of, 316, 317. in several states, 3. special acts of, 4. INDEX. 34.') [References are to pages.} INCREASE OF CAPITAL STOCK, directors may not order, 95. INDEMNITY BOND, form, 252. INDIVIDUAL LIABILITY, by-laws violated may result in, 86. INDORSEMENT, president's power of, 101. treasurer's power of, 103. INDUSTRIAL CORPORATIONS, See Business Corporations. INHERENT POWERS, See Powers. INSANE, stock, subscriptions and ownership, 14. INSOLVENCY, duty of state to protect corporation creditors, 8. re-organization of insolvent corporation, 189. stockholders' rights in case of, 133. INSPECTORS OF ELECTION, certificate of, form, 248. oath of, form, 248. INSURANCE, law governing corporations, 2. INSTALLMENT BOOKS. character and contents, 178, 179. INVESTMENTS, bonds and stock, 275. formation of corporation by individuals, 14. INTEREST, bond holder's right determined how, 64. J JOINT STOCK COMPANY, defined, 4. differs from corporation, 4. statutory authority for, 4. .346 INDEX, {References are to pages."] L LAWS. corporation governed by what, 2. LAWYER, the corporation, 272. LEASE, directors may not execute, 95. LIENS, bonds secured by, 125. LIMITED LIABILITY, advantages from incorporation, '6. LISTED SECURITIES, rules of admission, New York stock exchange, 303. LOANS, directors may negotiate, 94. necessity as an aid to capitalization, 33. statement by corporation to obtain, 166. LOOSE LEAF RECORDS, minutes of meetings kept by, 169. LOST SHARES, replacing by new certificate, 124. M MACHINERY, depreciation, how charged in bookkeepng, 152. MAJORITY, quorum at stockholders' meeting, 135. MAIL, notice of stockholders' meetings, 136. MAINE, advantages and disadvantages of corporation laws, 24. MANAGER, powers and duties of, 104. MARKETING PROMISSORY NOTES, 267. MARRIED WOMAN, corporations, may form, 14. INDEX, 347 [References are to pages.l MASSACHUSETTS, advantages and disadvantages of corporation laws, 24. MEETINGS, See Stockholders' Meetings. MINING, advantages of incorporation, 5. MINORITY, privileges at stockholders' meetings, 138. MINORS, subscriptions to corporation stock, 14. MINUTE BOOK, character and contents, 168-171. correction and approval of minutes, 170. MINUTES, secretary keeps, 102. MORTGAGE, bonds of corporation secured by, 39-44. bonds secured by, 126. directors may execute, 94. trust companies as trustee, 60. MOTIONS, minutes of introduction and passage of, 169. N NAME, See Change of Name. corporation names, 67. NATIONAL CORPORATIONS, congress may charter, 3. NEGLIGENCE, loss or theft of shares of stock, 124, 12i. NEGOTIABLE INSTRUMENTS, stock certificates are not, 124. NET EARNINGS, See Profits. NEVADA, advantages and disadvantages of corporation laws, 24. 348 INDEX. [References are to pages.] NEW JERSEY, advantages and disadvantages of corporation laws, 25. NEW MEXICO, advantages and disadvantages of corporation laws, 26. NEW YORK, advantages and disadvantages of corporation laws, 25. NON-RESIDENT, domestic corporations as non-residents, 27-28. NOTICE, director's meetings, 98. dividend, form, 250. stockholders' meetings, 136. waiver of notice of director's meeting, 99. O OATH, inspectors of election, form, 248. OFFICERS, See Directors. auditor, powers and duties, 105. by-laws violated may result in individual liability, 86. counsel, powers and duties of, 104, 105. de facto powers conferred by permission, 98. director's liability for acts of, 95. election and removal by directors, 96. election by stockholders, 96. number and classes of officers in corporation, 97. powers, source and extent, 96, 97. president, powers and duties, 100, 101. secretary, powers and duties, 102. treasurer's powers and duties, 103, 104. two or more oflBces held by same person, 97. vice-president, powers and duties, 101, 102. OPTION, underwriters' option on stocks and bonds, 49. ORDER OF BUSINESS, stockholders' meetings, 137. ORGANIZATION, where to incorporate, 22. INDEX. [References are to pages.} OUTSTANDING STOCK, definition and value, 118. OVER-ISSUED STOCK, definition, 120. good faith purchaser's rights, 121, 122. P PARLIAMENTARY LAW, See Rules of Order. PARTNERSHIP, advantages of incorporation, 7. changing to corporation, 65-67. joint stock company distinguished from corporaton, 4. may own corporation stoclt, 14. promoters may be liable as partners, 21. PAR VALUE, shares of stock should sell at, 35. PATENTS, value when exchanged for stock, 69. PAYMENT, stockholders' liability on partly paid shares, 134. PORTO RICO, advantages and disadvantages of corporation laws, 27. POWERS, inherent powers of corporation, 77. ultra vires acts, 77, 78. PREFERRED STOCK, bonds of corporation compared with, 40-41. classification as to dividends, 114. cumulative dividends, effect of issue, 41. definition, 113-116. distribution of assets on dissolution, 114. dividend payments controlled by articles of association, 65. form for certificate and stub, 230. issue to trustee for sale, 65. price with reference to time of issue, 62. redemption by corporation, 115, 116. right to issue, 116. voting at stockholders' meetings, 137. voting rights of holder, 116. 349 350 INDEX. ^References are to pages.} PRESIDENT, directors' meetings, presides at, 99. negotiable instruments executed by, 101. powers and duties, 100, 101. stockholders' meetings called to order by, 137. PRINCIPAL AND AGENT, directors are agents of corporation, 92. PROFIT, capitalization fixed on basis of, 34, 35. corporations organized for, 2. depreciation and renewals charged against, 152, 153. dividends on preferred stock payable from, 114, 115, promoter forming a corporation, 16. stockholders may share in, 133. PROFIT AND LOSS, additions to property charged against when, 155. auditor's charges against, 152. PROMISSORY NOTES, bonds of corporation likened to, 39-44. marketing in open market, 267. PROMOTER, accounting for secret profits, 19. commission for forming corporation, 18. contracts of corporation made by promoter, 21. contract of, form, 193. corporation's liability for services of, 19. definition and functions of, 15. determining amount of capitalization, 32-89. directors provided for new corporation must be independent, 17. failure to organize corporation, 19. fiduciary relation, 15-17. fraud, aiding and abetting, 22. fraud and concealment, 18. partnership liability, 21. placing stocks and bonds, 45, 49. profits of forming corporation, 16. prospectus disclosing interest, 17. relation of promoters among themselves, 21. subscriptions obtained by misrepresentation, 18. trustee for proposed corporation, 17. INDEX. 351 [References are to pages.'\ PROSPECTUS. misrepresentations contained in, 18. promoter's interest disclosed by, 17. PROXY, at stockholders' meetings, attendance by, 138. director cannot be represented by, 99. form for particular meeting, 247. form for specific action, 247. simple form, 247. PUBLICATION, notice of stockholders' meetings, 136. PUBLIC UTILITY CORPORATIONS, classification of corporations, 2. PURPOSES OF INCORPORATION, forms of purpose clauses, 199 et seq. QUORUM, directors' meetings, what constitutes, 99. stockholders' meeting must be attended by, 135. R- RAILROADS, bonds, classification of, 125-130. bond issues, value determined how, 128, 129. improvements, bookkeeping charges for, 153-156. law governing corporations, 2. RATIFICATION, corporation liable for unauthorized acts, 95. RECEIVERSHIPS, 260. RECEIVER'S CERTIFICATE, form, 241. REDEMPTION, bonds subject to redemption, 130. preferred stock redeemed by corporation when, 116. REGISTERED BOND, definition and incidents, 129. 352 INDEX. {References are to pages.l REGISTRAR, good faith purchase on transfer by registrar, 121, 122. negligence, liability for, 122. securities must be registered when, 60. use, powers and duties, 120-122. REMOVAL, directors may move principal office, 81. RENEWAL, charter, effect of renewal, 190. charged for in corporate bookkeeping, 153. REORGANIZATION, dissolution may be followed by, 80. law concerning, 188-190. REPEAL, dissolution by repeal of charter, 185, REPORTS, annual reports required by law, 23-27. auditor's duty concerning, 147, 148. auditor's statement of condition, 151-168. president makes when, 101. RESERVE, providing for in determining amount of capital, 35. RESIDENT AGENT, corporations organized to do business in other states, 27. RESIGNATION, stockholder cannot withdraw when, 185. ROCK ISLAND, distribution of stocks and bonds, 47, 48. RULES OF ORDER, definition and use, 87. RULES ON SECURITIES, New York Stock Exchange, 303. SALARIES, counsel for corporation, 105. treasurer's compensation, 104. president receives when, 100. vice-president receives when, 102. INDEX. 353 IReferences are to pages.'\ SALE, dissolution effected how, 186. good faith purchase on transfer by registrar, 121, 122. SCRIP, record in instalment books, 178, 179. SEAL, corporation may have and use, 77. corporate, 270. SECRETARY, corporation calendar kept by, 179-181. duties in transfer of stock certificates, 124. elections, duties concerning, 138. minute book, should keep, 168, 169. powers and duties, 102. stock certificate book, duties concerning, 173, 174. stockholders' meetings, duties concerning, 136, 137. SECURITIES, bonds classified, 125-130. definition, 50. SERVICES, promoter may recover from corporation, 19. stock issued in payment for, 23-27. value when exchanged for stock, 68, 69. SIGNATURES, corporate, 270. SINKING FUND, redemption of bonds provided by, 43. SHARES OP STOCK, bonus and partly paid shares. 111, 112. distinguished from capital, 110. execution and levy upon, 110. kinds of stock defined, 113-120. liability of holder if sold below par, 111, 112. liability of holder when full paid, 111. not essential to ownership of capital, 110. personal property of stockholders, 110. refusal to transfer on books, 174. stockholders' liability on partially paid shares, 134. stockholders' meetings, 136-139. subscription book, 176-178. transfer, cancellation of certificates, 173. 354 INDEX. [References are to pages.} SOUTH DAKOTA, advantages and disadvantages of corporation laws, 25. SPECIAL LAWS, incorporation by special act, 4. SPECIAL MEETINGS, directors may hold, 99. SPECIAL STOCK, definition, 117. STATEMENT, interpretation by accountant, 157-167. American Bankers' Association standard form for corporation, 264. STOCK, See Increase of Capital Stock; Shares of Stock. advantages from issue of corporation stock, 6. bonds distinguished from, 40-41. bonus and watered shares. 111, 112. capitalization of company, 32-39. common stock defined, 113. corporation allowed to hold when, 25, 26. distinguished from capital, 109. dividends earned before stock is issued, 63. essential in corporations for profit, 110. full paid stock defined. 111. income-yielding capacity, table, 320. kinds of stock defined, 113-120. listing in stock exchange, 59. nature and characteristics, 109, 110. partly paid stock defined, 111. payment of subscriptions before beginning business, 26. placing by promoters and agents, 45, 49. preferred stock defined, 113-116. price with reference to time of issue, 62, 65. registrars and transfer agents, 120-122. sale at market price by going corporation, 112. secretary's duties concerning, 102. subscriptions and ownership, 14. subscription, effect of, 69, 70. treasurer's duties concerning, 103. Mod. Bus. Corp.— 23 INDEX. ti&6 [References are to pages.'] STOCK — Continued. valuation of property received in exchange, 68, 69. value determined by stock exchange, 61, 62. void when over-issued, 120. STOCK BROKERS, origin of, 286. STOCK CERTIFICATE, incidents of issue and transfer, 123-125. loss or destruction, effect of, 124. loss or theft after assignment in blank, 124, 125. negotiability, 124. origin of, 283. registrar's liability on void certificate, 122. registrar or transfer agent signs when, 121. stockholders' rights concerning, 134. STOCK CERTIFICATE BOOK, character and contents, 172-174. return of certificate, 173. transfers entered in, 174. transfer of shares, 173. STOCK EXCHANGE, functions and declarations of purpose, 61. listing stocks and bonds, 59. origin of, 287. registry of securities required, 60. rules of business, 59, 62. rules on admission of securities. New York Stock Exchange, 303. STOCKHOLDERS, amendment of charter cannot be made by, 79-81. auditing books of officers, 105. auditor as reprfesentative of, 147, 148. by-laws adopted by, 84, 85. corporation distinct from, 1. directors and officers chosen by, 96. dissolution of corporation effected by, 185, 186. dividend book for benefit of, 176. ledger, character and contents, 171, 172. list kept in home state, 28. meetings, 136-139. meetings, duty of secretary, 102. 35G INDEX. [References are to pages.'\ STOCKHOLDERS— ConfinMCd. meetings in state where corporation was created, 27. meetings, time, place and purpose, 136-139. meetings, where held, 23-27. reorganization, authority for, 189. rights, powers and liabilities, 133-135. transfer of shares, 123-125. unanimous consent to change of charter or articles, 79. STOCKHOLDERS' LEDGER, character and contents, 171, 172. transfers entered in, 174. STOCKHOLDERS' MEETING, amendment of charter or articles, 81. calendar recording date of, 179-181. certificate of officers, 169. dissolution ordered by, 186, 187. minority, privileges of, 138. minute book records, 168, 169. minutes corrected and approved, 170. notice of annual, form, 245. notice of special, form, 245. notice to stockholders, 136. objections entered in minutes, 170. order of business, 137. place of holding, 136. presiding officer, 136, 137. proxies voted at, 138. proxy for, form, 247. regular and special meetings, 64. special meetings, 139. voting, manner of, 137. voting, who entitled to privilege, 137. waiver of notice, form, 246. STOCK SUBSCRIPTION, assessment, definition and effect, 70, 71. STUBS, stock certificate book, entries in, 172, 173. SUBSCRIPTIONS. by owners of business in agreement with promoter, form, 194. effect and binding force, 69-71. forfeiture for non-payment, 70. INDEX. [References are to pages.'i SUBSCRIPTIONS— ConfinMCrf. instalment books recording payments, 178, 179. promoter's liability for misrepresentation, 18. stockholders have preference, 133. stockholder's liability upon, 134. subscription book, record of, 176-178. underwriting defined, 70. who forbidden to form corporations, 14. SUBSCRIPTION BLANK, after organization, form, 196. SUBSCRIPTION BOOK, character and contents, 176-178. SURETY COMPANY, treasurer should give bond signed by, 104. SYNDICATE, underwriting corporation securites, 46, 47. TABLES, income from stocks, 320. incorporation fees, 316-317. TAXATION, bond issue treated as a debt, 44. calendar recording date for payment, 179-181. statutes for organization of corporations, 23-27. TAXES, foreign corporations required to pay, 28-31. reduction by bond issue, 44. table of, 318-319. THEFT, estoppel of owner of shares assigned in blank, 124, 125. THEORY, duty of state in creating corporation, 7. TRANSFER, dissolution of corporation effected how, 185, 186. incidents of issue and transfer of stock, 123-125. refusal to act until court has ruled, 174. registrars and transfer agents, 120-122. stock certificate book, entries in, 173. 358 INDEX. [Referetices are to pages.} TRANSFER BOOK, character and contents, 174-176. stock certificate book as substitute, 174. TRAVELING SALESMAN, foreign corporation, representative of, 29. TREASURER, bond and sureties, 103, 104. dividend book kept by, 176. powers and duties, 103, 104. TREASURY STOCK, definition, 119. TRESPASS, directors personally liable when, 95. TRUSTS, organization through financial banking, 50, 59. size of, 278. TRUST COMPANIES, fiscal agents in placing stocks and bonds, 45. stock exchange recommendations, 60. registrars and transfer agents for corporations, 120-122. TRUST DEED, trust company as trustee, 60. TRUSTEE, issue of preferred stock for sale, 65. TRUSTS AND VOTING TRUSTS, 257. UNDERWRITING, definition, 46. form of agreement, 196. sales of stocks and bonds through underwriters, 48, 49. stock subscription, agreement concerning, 70. UNINTELLIGENT COMPETITION, 289. UNISSUED STOCK, definition, 118. UNLISTED SECURITIES, rules of admission, N. Y. Exchange, 309. INDEX. 359 [References are to pages.] ULTRA VIRES, definition of term, 77, 78. director's personal liability, 95. VALUE, property exchanged for stock, 68, 69. stock exchange gives publicity to, 61, 62. VICE-PRESIDENT, powers and duties of, 101, 102. VIRGINIA, advantages and disadvantages of corporation laws, 2<>. VOTING, bondholders allowed to vote when, 26. preferred stockholder's right, 116. stockholders' meetings, 136, 137. stockholders' powers concerning, 135-139. VOTING TRUST, 257. agreement, form, 243. WAIVER, notice of directors' meeting may be waived, 99. WALL STREET, financial banking and trust organization, 50, 59. WASH SALES, definition of, 54. ■^^ALTH, in corporate enterprise, 281. WEST VIRGINIA, advantages and disadvantages of corporation laws, 26. WINDING UP BUSINESS, directors may not order, 95. 'Yi'] UC SOUTHERN REGIONAL LIBRARY FACILITY AA 000 836 034 9 ^MAy * *^_g^ rrt .- E9 n ^ ■ tllBRAR HH ( .s^AAh .^r^^